J  K 


-^.    CHAIRMAN 
S,    VICl-CH^ 


C.  B.  Miller,  *ctinos«c« 
Fred  W.  Upham,  treas.: 
Reeve  Schley.  «*stebn 


CPUBLICAN     NATIONAL    COMMITTEE 

DVISORY   COMMITTEE   ON    POLICIES   AND    PLATFORM 


CHAIRMAN.    EXECUTIVE   COMMITTEE 
tl^j^  O'LAUGHLIN 


19     WEST     44th     street 
N  EW     YORK     CITY 


:.AMUEL    McCUNE    LINO 

STAFF   DIRECTOR 

JACOB  H.  HOLLANDER 

ASSOCIATE  STAFF  OIRECTOR 


Reports  of  Sub-Committees 


1920 


GIFT  OF 


\  ,'  G.lEs' Miller,  acting  secretary 

Will  H.  Hays,  CHAIRMA^  '^  \,    ;    -  f're6  W.  Upham,  treasurer 

JOHN   T.   Adams.  vice-Cha.rman  ,         ,,,,,.,;   Reeve;  ^HLEY.  .astern  treasurer 

Republican  national  Committee 

ADVISORY   COMMITTEE    ON    POLICIES   AND    PLATFORM 

19     WEST     44th     street 

OGDEN    L.    MILLS  SAMUEL    McCUNE    LINDSAY 

CHAIRMAN,    EXECUTIVE   COMMITTEE  NEW        YORK        CITY  STAFF   DIRECTOR 

JOHN    CALLAN    O'LAUGHLIN  JACOB  H.  HOLLANDER 

SECRETARY.    EXECUTIVE    COMMITTEE  ASSOCIATE  STAFF  DIRECTOR 


Reports  of  Sub-Committees 


1920 


ADVISORY  COMMITTEE  ON   POLICIES  AND   PLATFORM 


OGDEN   L.  MILLS 

CHAIRMAN.  EXECUTIVE  COMMITTEE 

JOHN  CALLAN  OLAUGHLIN 
SECRETARY.  EXECUTIVE   COMMITTEE 


WILL  H.  HAYS,  chairman 


SAMUEL    McCUNE     LINDSAY 
STAFF   DIRECTOR 

JACOB   H     HOLLANDER 
ASSOCIATE   STAFF   DIRECTOR 


Henry    Allen,    Kan. 

Henry  W.  Anderson,  Va. 

Sidney  Anderson,  Minn. 

Mrs.  Rupert  Asplund,  N.  M. 

W.   B.   Ayer,   Ore. 

James  E.   Babb,  Idaho. 

Mrs  Frederick  T.   Bagley,  Mass. 

Mrs.    Arthur    Ballentine,,  Me. 

Truxtun  Beale,  Wash.,  D.  C. 

Albert  J.  Beveridge,  Ind. 

Charles  Sumner  Bird,  Mass. 

Jonathan  Bourne,  Jr.,  Wash.,  D.  C. 

Henrv  A.  Buchtel,  Colo. 

E.   L.   Burke,   Omaha,  Neb. 

Mrs.  Clara  B.   Burdette,  Calif. 

H.  O.  Bursum,  New  Max. 

W.  P.  Bynum,  N.  C. 

R.   J.   Caldwell,  New  York. 

Mrs.    M.    D.    Cameron,    Neb 

Thomas  Campbell,  Arizona. 

Milo  Campbell,  Mich. 

Arthur  Kapper,  Kan. 

Robert  D.  Cary,  Wyo. 

Daniel  L.  Cease,  Ohio. 

Robert    R.    Church,    Tenn. 

Howard  Clarke,   Iowa. 

George  I.  Cochran,  Calif. 

Everett  Colby,  N.  J. 

William  Miller  Collier,  Wash.,  D.  C 

John  G.  Cooper,  Ohio. 

W.   H.    Cowles,  Wash. 

W.  Murray  Crane,  Mass. 

William  H.   Crocker,  Cal. 

John  Crosby,   Minn. 

Albert  Cummins,  Iowa. 

J.   J.   Curtis,  Ala. 

Walter  S.  Dickey,  Mo. 

Joseph  Dixon,  Mont. 

S.    S.   Downer,  Nevada. 

John  J.  Esch,  Wis. 

Albert  B.  Fall,  N.  M. 

Frank   Farrington,   111. 

S.  D.  Fess,  Ohio. 

John  Fields,  Okla. 

Frederick  Freylinghuysen,  N.  J. 

S.  A.  Furniss,  Ind. 

James  R.  Garfield,  Ohio. 

Frederick  H.  Gillett,  Mass. 

George  W.  Goethals,  New  York. 

Lyman  B.  Goff,  R.  I. 

James  W.  Good,  Iowa. 

Arthur   T.    Hadley,   Conn. 

Herbert  S.  Hadley,  Colo. 

John  Hays  Hammond,  Wash.,  D.  C. 

Mary  Garrett  Hay,  New  York. 

Caroline  Hazard,  R.  I. 

George  C.   Hazelet,  Alaska. 

Myron  T.  Herrick,  Ohio. 


William   Heyburn,  Ky. 

V.  L.  Highland,  W.  Va. 

Charles  D.   Hilles,  New  York. 

Mrs.   Solomon  Hirsch,  Ore. 

Frank  Hitchcock,  New  York. 

R.  B.  HoweU,  Neb. 

Charles  Evans  Hughes,  New  York. 

Edwin  Holt  Hughes,  Mass. 

William  L.  Hutchinson,  Mich. 

Jacob  B.   Irwin,  Minn. 

Daniel  C.  Jackling,  Arizona. 

James  W.  Johnson,  New  York. 

Julius  Kahn,  Calif. 

Otto  Kahn,  New  York. 

Patrick  H.  Kelley,  Mich. 

Frank  B.  Kellogg,  Minn. 

Frank    Knox,    N.    H. 

Philander  C.  Knox,  Pa. 

Albert  D.  Lasker,  111. 

Irvine  L.  .Lenroot,  Wis. 

Wm.   Draper  Lewis,  Pa. 

Wm.    H.   Lewis,   Mass. 

D.  A.   Lines,   La. 

George  B.   Lockwood,  Wash..  D.  C. 

Henry   Cabot  Lodge,  Mass. 

William  Loeb,  Jr.,  New  York. 

Nicholas  Longworth,  O. 

W.-  Bladen  Lowndes,  Md. 

J.  B.  Luhrsen,  Wash. 

P.  H.  McCarthy,  Calif. 

Robert  R.  McCormick,  111. 

M.  B.  McFarlane,  Fla. 

H.  F.  MacGregor,  Texas. 

Schuyler  Merritt,  Conn. 

Mrs.  Walter  McNab  Miller,  Mo. 

A.  L.   Mills,  Ore. 

Ogden  L.   Mills,  New  York. 

Frank  W.   Mondell,  Wyo. 

John  M.  Morehead,  N.  C. 

Alex.  P.  Moore,  Pa. 

Harry   S.   New,   Ind. 

Charles  W.  Nibley,  Utah. 

John  I.  Nolan,  Calif. 

Peter  Norbeck,  S.  D. 

Marie  L.  Obenauer,  Wash.,  D.  C. 

Herschel  C.   Ogden,  W.  Va., 

John  Callan  O'Laughlin,  Wash.,  D.  C. 

Lem  E.   Oldham,  Miss. 

Frank  C.  Partridge,  Vt. 

Herbert  Parsons,  N.  Y. 

Joseph  M.  Patterson,   111. 

Senator  Boies  Penrose,  Pa. 

George  Wharton   Pepper,   Pa. 

George  W.  Perkins,  New  York. 

Clifford   Pinchot,   Pa. 

Edgar  B.  Piper,  Ore. 

John   H.    Potts,    Ohio. 

"George  F.  Porter,  HI. 


Mrs.      Josephine      Corliss      Preston, 

Washington. 
C.  Frank  Reavis,  Neb. 
Mrs.  Helen  Rogers  Reid,  New  York. 
Mark  L.  Requa,  Cal. 
Robert  H.  ^Richards,  Del. 
Mrs.  Mary  Roberts  Rinehart,  Pa. 
W.   D.    Riter,   Utah. 
Mrs.  Raymond  Robins,  111. 
Karl  G.  Roebling,  New  Jersey. 
George  C.  Roeding,  Calif. 
Charles  A.  Rook,  Pa. 
Theodore  Roosevelt,  N.   Y. 
Elihu  Root,  New  York. 
Victor   Rosewater,   Neb. 
J.   H.  Rossiter,  Cal. 
Andrew  J.  Russell,  Ark. 
R.  B.   Sanford,  N.  Y. 
John  C.  Shaffer,  111. 
Jacob  Gould  Schurman,  N.  Y. 
Albert  Shaw,   New  York. 
R.  W.  Shingle,  Hawaii. 
Roscoe  Conklin  Simmons,  Ky. 
Reed  Smoot,  Utah. 
Mrs.  George  A.  Soden,  111. 
Mrs.  John  G.   South,  Ky. 
B.  F.  Spalding,  North  Dakota. 
Henry   Suzzallo,   Washington. 
A.  V.  Swift,  Ore. 
John  M.  Switzer,  P.  I. 
T.   J.   Taber,   Ohio 
William    H.    Taft,    Conn. 
J.   Will   Taylor,  Tenn. 
J'ercy  Tetlow,   Ohio, 
^m.  H.  Thompson,  Me. 
William  J.  Tilson,  Ga. 
R.  H.  Todd.  Porto  Rico. 
R.   R.  Tolbert,  Jr.,  S.   C. 
Mrs  Anna  Wolcott  Vaile,  Colo. 
E.  A.  Van  Valkenburg,  Pa. 
Frank  A.  Vanderlip,  New  York. 
Harriet  E.  Vittum,  111. 
Eliot  Wadsworth,  Mass. 
George  H.  Walker,  Washington. 
Henry  C.  Wallace,  Iowa. 
Mrs.   Barclay  Warburton,  Pa. 
Chas.  B.  Warren,  Mich. 
Tames  E.  Watson,  Ind. 
Henry  Welsh,  Utah. 
Harry  A.   Wheeler,   111. 
William  Allen  White,  Kan. 
Horace  S.  Wilkinson,  N.  Y. 
William  R.  Willcox,  New  York. 
Silas  Williams,  Tenn. 
Henry  Lane  Wilson,  Ind. 
W.  H.  Wilson,  Texas. 
Robert  E.  Woodmansee,  111. 
Richard   Yates,   111. 
Mrs.  Theodora  Youmans,  Wis. 


w 


„              , .           J  TTT  i.  iGifford  Pinchot      ) 

Conservation  and  Waterways |Daniel  C.  Jacklingj 


REPORTS   OF   SUB-COMMITTEES 

Topic  Chairman 

Agricultural  Policies Arthur  Capper 3 

Civil  Service  and  Retirement .James  R.  Garfield 23 

39 

Currency  and  Banking Frank  A.  Vanderlip 47 

Federal  and  State  Control Everett    Colby 57 

High  Cost  of  Living. . .  .^ Helen  Rogers  Reid 101 

Immigration    Frederick  H.  Gillett 71 

Industrial    Relations R.  J.   Caldwell 115 

Industry  and  Commei'ce George  Wharton  Pepper 217 

Insular  Possessions John  M.  Switzer 259 

International  Trade  and  Credits Frank  A.  Vanderlip 201 

Law  and  Order Albert  J.  Beveridge 81 

Merchant  Marine George  W.  Goethals 133 

National  Economy James  W.  Good 229 

Postal    Service George  B.  Lockwood 97 

Railroads   Albert  B.  Cummins 149 

Social  Problems. William  Allen  White 157 

Taxation    Ogden  L.  Mills 171 

War  Risk  Insurance '. .  Frederick  Frelinghuysen 187 


48^570 


Agricultural  Policies 


Report  of  Sub-Committee 


ARTHUR  CAPPER 

Chairman 


CLYDE   L.   KING 
Staff  Assistant 


AGRICULTURAL  POLICIES 

The  wholesale  prices  for  all  farm  products  have  kept  pace  with  and  ex- 
ceeded the  increase  in  the  price  of  all  commodities.  But  producers  of  meat 
and  of  milk  have  not  received  price  advances  proportional  to  the  price  ad- 
vances either  on  all  other  commodities  or  on  all  other  farm  products. 

The  output  of  farm  products  with  rare  exceptions  such  as  sheep  increased 
during  the  war  period.  The  estimated  income  to  the  farmers  in  the  United 
States  increased  112%  from  1910  to  1917,  as  compared  with  an  increase  of  20&% 
to  manufacturing  light  and  power  companies. 

Wages  for  agricultural  labor  have  not  increased  as  rapidly  as  have  wages 
in  manufacturing  industries  nor  as  rapidly  as  the  general  price  level.  The  re- 
sult is  that  farming  communities  are  short  of  competent  labor. 

In  1910  38%  of  the  farms  in  this  country  were  operated  by  tenants.  This 
percentage  is  rapidly  increasing. 

The  use  of  fertilizers  has  not  kept  pace  with  the  need  because  of  prices  for 
fertilizers  as  compared  with  prices  for  farm  products. 

The  United  States  Bureau  of  Markets  has  expanded  its  informational  serv- 
ice, but  does  not  present  this  informational  service  in  a  form  which  makes  it 
of  much  value  to  the  average  farmer.  It  sends  out  a  great  mass  of  detailed 
figures  which  are  neither  digested  nor  interpreted.  It  has  not,  however, 
made  an  extended  survey  of  the  need  for  co-ordinating  wholesale  and  retail 
marketing  facilities  in  cities  with  transportation  by  rail,  water,  wagon  and 
truck. 

Approximately  $294,000,000  from  national  funds  have  been  made  avail- 
able for  aid  to  state  roads  in  1920  and  the  states  have  appropriated  an  addi- 
tional $385,000,000  for  this  purpose.  The  need  is  for  good  roads  from  farm 
to  market  rather  than  for  what  the  farmer  calls  national  speedways. 

National  legislation  under  the  Federal  Reserve  and  under  the  Federal 
Farm  Loan  Boards  seems  to  provide  adequate  legislation  for  long-term  credits 
with  real  estate  as  security.  The  present  need  is  for  personal  credits.  The 
demand  for  state  legislation  providing  for  credit  unions  is  growing  as  a  means 
for  meeting  this  need. 

In  recent  years,  under  the  Agricultural  Extension  Act  of  1914  and  under 
the  Smith-Hughes  Act  of  1917,  large  national  appropriations  have  been  made 
available  for  agricultural  education  and  information. 

The  crux  of  the  present  agricultural  condition  lies  in  prices,  labor  and 
credits. 

In  considering  policies  for  agriculture  in  the  United  States,  stress  should 
be  put  Upon  the  following:  (1)  Live  stock  and  dairy  products  are  lower  in 
price  relatively  than  grains,  thus  discouraging  production  of  these  products; 
(2)  higher  wages  will  have  to  be  paid  to  secure  skilled  and  reliable  help  for 
farmers'  needs;  (3)  there  is  special  need  for  short  time  personal  credit;  (4) 
further  national  aid  to  rural  education  should  receive  serious  consideration; 
(5)  cheaper  fertilizer;  (6)  export  markets  for  meat,  milk  products  and 
wheat;  (7)  marketing  facilities;  (8)  a  national  commission  to  report  on  the 


co-ordination  of'railv^ter  ahd-iatotur  transport  with  adequate  facilities  for  re- 
ceiving, handling  and  transporting  facilities  within  the  cities. 

PRICES  FOR  FARM  PRODUCTS: 

The  chart  on  the  next  page  pictures  the  increase  in  the  wholesale  price 
of  farm  products  through  1913  up  to  1920  by  months  as  compared  with  the 
increase  in  the  wholesale  price  of  all  other  commodities.  The  index  numbers 
used  for  both  curves  are  those  prepared  by  the  Bureau  of  Labor  Statistics. 
The  prices  for  the  year  1913  are  taken  as  equal  to  one  hundred  in  both  curves. 

The  price  on  all  farm  products  has  increased  more  rapidly  than  has  the 
price  for  all  commodities,  including  farm  products.  As  a  basis  for  comparison 
this  chart  also  includes  the  relative  increase  in  the  values  (dollars)  of  (1)  all 
crops,  (2)  animals  and  animal  products  and  (3)  all  farm  products. 

While  this  chart  shows  that  the  prices  of  all  farm  products  have  kept 
pace  with  and  exceeded  the  increase  in  the  price  of  all  commodities,  an  exami- 
nation of  prices  by  products  shows  that  prices  for  meats  and  for  milk  and  for 
poultry  and  dairy  products  did  not  rise  as  rapidly  as  did  the  prices  for  all  com- 
modities nor  for  all  farm  products.  Charts  Nos.  2  and  3  following,  from  the 
bulletins  of  the  War  Industries  Board,  show  the  relative  wholesale  prices  of 
(a)  poultry  and  dairy  products  and  (b)  livestock,  meats  and  fats  as  compared 
with  the  wholesale  prices  of  all  commodities  from  January,  1913,  to  December, 
1918,  inclusive.  In  neither  of  these  groups  of  commodities  did  prices  increase 
as  rapidly  as  did  the  general  price  level.  In  Chart  No.  4^  is  shown  the  rela- 
tive increase  in  the  price  of  milk  in  Pittsburgh  and  Philadelphia  for  the  years 
1913  to  1919,  inclusive.  The  prices  for  1913  are  taken  as  equal  to  one  hun- 
dred. In  these  districts  the  price  of  milk  to  the  producer  in  1919  and  1920 
fairly  caught  up  with  the  general  price  level,  but  prices  for  milk  to  producers 
lagged  behind  the  general  price  level  in  1915,  1916  and  1917.  These  curves  are 
typical  of  milk  prices  elsewhere,  except  that  Pittsburgh  milk  producers  re- 
ceived a  price  above  the  prices  prevailing  in  other  primary  markets  for  the 
latter  months  of  1919. 

Producers  of  meats  and  of  milk  in  general  have  not  received  price  advances 
proportional  to  their  costs  nor  proportional  to  the  price  advances  for  all  farm 
products  nor  for  all  commodities.  Sheep  producers  are  the  only  exceptions  to 
this  rule. 

These  facts  are  emphasized  by  Chart  No.  5,  which  compares  the  increase 
in  wholesale  prices  for  (a)  beef  cattle,,  (b)  milk  cows,  (c)  sheep,  (d)  hogs, 
(e)  mules,  (f)  horses  and  (g)  com.  All  of  these  price  curves  use  1913  as  a 
basis  for  comparison.  As  compared  with  1913,  the  production  of  sheep  has 
decreased,  while  that  of  hogs,  mules,  horses,  milk  cows  and  beef  cattle  slightly 
increased. 


'From  "The  Milk  Price  Situation  in  Pittsburgh,"  an  address  given  before  the  Kiwanis. 
Club  of  Pittsburgh,  March  25,  1920.  .  • 


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PROFITS  AND  INCOMES  OF  FARM,  MINE  AND  FACTORY: 

The  following  table  tells  the  whole  story  as  to  the  status  of  agriculture  at 
this  time  as  compared  with  other  industries.  Of  the  corporations  whose  net  in- 
comes are  compiled  below,  45%  of  the  net  income  of  corporations  devoted  to  agri- 
culture gave  a  return  on  capital  of  15%  or  less,  whereas  but  9%  of  the  net 
income  from  manufacturing  or  mining  was  in  corporations  making  15%  or  less 
on  their  capital,  and  about  12%  of  the  net  income  from  mining  and  manufac- 
turing was  in  corporations  making  over  50%  per  year  on  their  capital,  while  26% 
of  the  net  income  in  these  two  industries  was  in  corporations  making  from  40% 
to  50%  net  income  on  capital.  Agriculture,  railroads,  and  public  utilities  have 
not  made  profits  at  all  comparable  with  those  in  mining,  manufacturing,  and 
transportation  by  water. 

NET  INCOME  OF  30,892  CORPORATIONS  IN  1917' 

Per  cent,  of  Railroads     Transpor- 

Net  Income  and  Public       tation         Agri-  Manufacturing 

to  Capital                          Financial  Utilities     by  Water      culture  and  Mining  Total 

Under  10% 13,196,381  349,189,634     1,234,161  11,406,299  10;,952,626  476,979,201 

10-15    29,993,941  70,634,613        476,988  12,329,659  275,712,345  389,147,546 

15-20    6,086,476  21,207,001        342,609  11,727,481  537,246,584  576,610,151 

20-25    4,997,479  5,053,306        795,384    8,918,816  546,806,982  566,571,967 

25-30    1,098,866  3,531     2,337,854  26,846,975  313,941,558  324,228,784 

30-40    767,187  30,486     7,000,892  13,042,739  668,613,578  689,454,882 

40-50   182,685  —     3,728,476    1,837,818  1,183,859,402  1,189,608,381 

50-75    50,299  —     4,496.97512,754,592  275,655,773  292,957,639 

75-100   "...          9,809  —  21,542;242       449,198  111,374,338  133,031,853 

Over  100    123,018  52,229     1,395,374       296,999  116,164,233  — 

56,506,241  446,170,800  43,350,955  79,610,576  4,131,327,419  4,756,965,991 

Even  more  striking  is  the  result  of  a  comparison  of  the  relative  increase  in 
the  total  income  of  farmers  in  the  United  States  since  1910.  The  total  social 
income  for  the  United  States  in  1910  M^as  estimated  by  Prof.  King  at  $30,529,- 
500,000  and  for  1917  by  Prof.  Friday  at  $65,515,000,000.  During  this  period 
the  total  estimated  income  to  the  agricultural  groups  increased  112%  (from 
$6,842,000,000  to  $14,500,000,000),  as  contrasted  with  an  increase  of  208%  to 
manufacturing,  light  and  power  companies  (from  $8,437,600,000  to  $25,800,- 
000,000)  and  275%  (from  $976,000,000  to  $3,675,000,000)  to  mining  industries.. 
The  increase  to  commercial  and  professional  services  (from  $8,997,200,000  to 
$9,750,000,000,  or  8%)  and  to  transportation  companies  ($2,656,000,000  to 
$3,040,000,000,  or  14%)  were  smaller  than  to  agriculture.  In  other  words,  labor 
has  gone  to  manufacturing  and  mining  companies  because  values  were  there; 
and  agriculture  is  suffering  as  a  consequence. 

WAGES  FOR  AGRICULTURAL  LABORERS: 

The  story  of  wages  for  agricultural  labor  during  the  war  period  is  quickly 
read  in  Chart  No.  9  on  the  following  page.  In  this  chart  the  wage  paid  for 
farm  labor  without  board  by  years  as  reported  from  1913  to  1919,  inclusive, 
in  the  Monthly  Labor  Review  is  compared  with  (a)  the  increase  in  prices  for 
all  commodities  and  (b)  the  increase  in  the  wholesale  prices  of  all  farm  prod- 
ucts by  years.    The  wage  taken  for  farm  labor  is  the  average  reported  for  day 


'By   David   Friday;    see  The  Annals   of   the  American  Academy  of  Political  and  Social 
Science,  May,  1920. 

11 


labor  for  harvest  and  day  labor  not  at  harvest.     The  wages  for  this  period 
w6re  as  follows : 


Day  Labor 

Day  Labor  Not 

By  the 

Month 

at  Harvest 

at  Harvest 

With 

Without 

With       Without   ' 

With       Without 

Board 

Board 

Board         Board 

Board         Board 

1913    

21.38 

30.31 

1.57             1.94 

1.16             1.50 

1914    

21.05 

29.88 

1.55             1.91 

1.13             1.45 

1915    

21.26 

30.15 

1.56             1.92 

1.13             1.47 

1916     

23.25 

32.83 

1.69             2.07 

1.26             1.62 

1917     

28.87 

40.43 
47.07 

2.08            2.54 
2.65             3.22 

1.56             2.02 

1918 

34.92 

2.07             2.63 

1919     

39.82 

56.29 

3.15             3.83 

2.45             3.12 

It  is  difficult  to  get  an  exact  statement  as  to  increases  in  the  wages  in  the 
different  industries.  In  the  iron  and  steel  industry  wages  have  about  kept 
pace  with  the  general  price  level.  In  the  clothing  industry,  in  which  workers 
were  underpaid  before  the  war,  wages  have  increased  more  rapidly  than  did  the 
general  price  level.  In  most  industries,  however,  wages  did  not  quite  keep  pace 
with  living  costs. 

A  comparison  of  such  data  as  is  available  clearly  shows  that  wages  to  agri- 
cultural workers  have  not  kept  pace  with  the  standard  of  wages  offered  in  in- 
dustries. Around  large  manufacturing  centers  particularly  agricultural  com- 
munities have  been  drained  of  competent  labor.  In  New  York  State  the  num- 
ber of  hired  men  on  farms  decreased  18%  from  February  1,  1917,  to  February 
1,  1918,  and  in  the  past  year  17%.  In  Pennsylvania  37%  of  the  farmers  have 
been  unable  to  get  the  help  desired  and  near  large  industrial  centers  the  per 
cent,  is  larger. 

TENANTRY: 

From  the  census  returns  we  learn  that  25.6%  of  the  farms  in  this  coun- 
try were  operated  by  tenants  in  1889,  28.4%  in  1890,  36.4%  in  1900,  and  38% 
in  1910.  The  situation  is  even  worse  than  these  percents.  indicate,  as  all  were 
classed  as  "owners"  who  owned  their  land  in  whole  or  in  part  or 
who  rented  part  of  their  land.  In  some  states,  such  as  Texas, 
New  Jersey,  and  New  York,  the  per  cent,  of  tenantry  is  greater  than  in  others. 
In  1840,  44872  of  the  215,597  farms  in  New  York  State  were  operated  by  ten- 
ants. Observers  agree  that  there  has  been  an  extraordinary  increase  in  ten- 
antry in  the  last  decade.  The  tenantry  problem  is  coming  to  be  a  big  one  for 
Americans.  It  is  wrapped  up  with  credit  facilities  for  land- and  equipment, 
and  with  prices  for  farm  products. 

FERTILIZERS: 

With  the  passing  of  frontier  farms  and  with  the  relative  decline  in  the  pro- 
duction of  animals,  commercial  fertilizers  have  assumed  a  new  importance  to 
American  agriculture.  From  1910  to  1914  the  tonnage  of  commercial  fertilizers 
used  in  this  country  increased  about  one-third,  from  5,750,000  tons  to  7,600,000 
tons.  During  the  first  two  years  of  the  war  this  consumption  declined  to  that 
of  1910  and  rose  only  to  6,400,000  tons  in  1917. 

Of  the  three  elements  essential  to  commercial  fertilizers,  phosphates,  nitro- 
gen and  potash,  the  last  named  only  was  not  available  during  the  early  war 
period.     Domestic  production  of  potash  was  stimulated  by  governmental  and 

12 


private  agencies.  The  production  in  1917  was  32,573  tons  and  in  1918  52.135 
tons,  nearly  one-fourth  of  the  amount  normally  consumed  in  this  country  be- 
fore the  war.  The  possibility  of  gaining  commercial  independence  of  Germany 
as  a  source  for  our  potash  has  been  demonstrated,  provided  all  considerations 
of  cost  are  disregarded. 

Under  authorization  of  a  special  section  of  the  Food  Control  Act  the  Na- 
tional Bureau  of  Markets  in  the  last  year  of  the  war  distributed  75,000  tons  of 
nitrate  of  soda  from  Chile  to  farmers  at  cost.  The  government  spent  $10,000,- 
000  or  thereabouts  on  a  nitrate  plant  for  war  purposes.  Many  farmers'  or- 
ganizations have  joined  in  asking  Congress  to  continue  this  plant  on  a  cost  basis 
in  order  to  encourage  American  agriculture,  while  maintaining  preparedness 
for  a  war  emergency.  . 

THE  SERVICES  OF  THE  U.  S.  BUREAU  OF  MARKETS: 

The  functions  of  the  Bureau  of  Markets  are  classified  under  three  headings 
— service  work,  investigational  work,  and  regulatory. 

In  its  service  work  the  Bureau  issues  daily  reports  on  the  prices  and  mar- 
ket conditions  for  32  kinds  of  fruits  and  vegetables,  for  livestock  and  meats, 
and  for  dairy  and  poultry  products.  Weekly  summaries  of  news  on  these 
products  are  also  published.  Reports  for  grain,  hay,  and  feeds  are  issued  bi- 
weekly, with  monthly  reports  for  seeds,  and  quarterly  reports  ^on  the  wool 
stocks  held  in  the  country. 

Another  work  of  the  Bureau  is  its  city  market  local  reporting  service, 
which  was  operating  in  16  cities  during  1918.  Daily  reports  are  published  in  the 
local  newspapers  of  these  cities,  especially  for  truck  produce,  in  order  to  inform 
the  producer  and  consumer  of  the  existing  market  situation,  and  where  possi- 
ble to  promote  direct  marketing. 

In  1917  the  Bureau  of  Markets  established  a  system  of  inspection  of  food 
products  received  at  the  important  fruit  and  vegetable  markets.  Under  this  plan 
either  a  shipper  or  consignee  can  upon  request  obtain  a  certificate  from  an 
agent  of  the  Bureau  stating  the  condition  and  soundness  of  the  goods  upon  ar- 
rival. Such  certificate  is  accepted  as  legal  evidence  in  cases  of  dispute  between 
shippers  and  receivers  of  perishable  food  products,  the  purpose  of  the  plan 
being  to  minimize  any  unfair  practices  of  dissatisfaction  that  may  exist  in  the 
produce  and  commission  trade  regarding  refusal  of  shipments  and  price  reduc- 
tions. 

During  the  war  the  Bureau  undertook  two  additional  services  purported  to 
be  in  the  direct  interest  of  farmers.  The  first  of  these  was  the  purchase  from 
Chile  of  120,000  tons  of  nitrate  to  be  sold  to  farmers  at  cost.  Lack  of  shipping 
made  it  possible,  however,  actually  to  sell  only  75,000  tons  of  nitrate,  which 
was  supplied  to  farmers  either  directly  by  the  Bureau  or  through  County 
Agents.  The  second  service  was  the  cost  sale  to  farmers  of  seeds  in  certain 
sections  which  had  been  heavily  stricken  with  drought  during  preceding  seasons. 
Some  seed  loans  were  also  extended. 

The  investigational  work  of  the  Bureau  has  included  the  working  out  of 
uniform  systems  of  accounts  for  grain  elevators,  commission  houses,  creameries, 
cooperative  associations,  and  various  other  agricultural  businesses. 

Studies  have  also  been  made  of  the  possibilities  in  marketing  certain  prod- 
ucts directly  by  means  of  express  and  parcels  post.     Additional  studies  have 

13 


been  pi^rsued  in  matters  of  farmers'  cooperative  purchasing  and  marketing. 
The  results  of  all  these  investigations  are  given  to  farmers  and  to  the  public 
through  means  of  various  publications. 

Within  the  last  two  years  the  Bureau*  has  sent  an  agent  abroad  to  study 
market  opportunities  and  marketing  facilities  for  grain,  cotton,  fruits,  and  nuts 
in  China,  Japan,  and  the  Philippines,  and  in  Great  Britain,  France,  Italy,  and 
Spain.    -  * 

The  regulatory  work  of  the  Bureau  of  Mal-kets  comprises  the  administra- 
tion of  recent  federal  statutes  bearing  on  agriculture,  such  as  the  Cotton  Fu- 
tures Act,  the  Grain  Standards  Act,  the  Warehouse  Act,  and  the  Standard  Con- 
tainer Act. 

NATIONAL  AID  TO  STATE  ROAD^ 

On  July  11,  1916,  the  Federal  Aid  Road  Act  became  effective  providing  na- 
tional aid  for  roads  constructed  by  the  states  of  standards  approved  by  the 
national  government.  This  act  appropriated  $5,000,000  for  the  year  ending 
June  30,  1917,.  and  increased  this  appropriation  by  $5,000,000  each  year  for 
five  years,  reaching  $25,000,000  in  1921,  a  total  of  $75,000,000.  For  trails  in 
national  forests  $10,000,000  were  appropriated.  Since  the  passage  of  this  act 
the  total  appropriations  have. been  substantially  increased. 

From  the  passage  of  the  Federal  Aid  Road  Act  in  July  1916,  to  Novem- 
ber 1, 1917, 1,927  projects  have  been  approved  for  a  total  length  of  18,596  miles. 
The  estimated  cost  of  this  work  is  $225,267,847,  of  which  sum  $95,498,140  will 
be  contributed  by  the  federal  government.^ 

The  road  building  plans  for  1920  are  very  extensive,  as  federal  funds  to  the 
amount  of  $294,000,000  have  been  made  available,  and  it  is  estimated  that 
state  appropriations  will  amount  to  $385,000,000.-  Up  to  July  1,  1919,  road 
bond  issues  by  various  states  had  been  authorized  and  also  approved  by  popu- 
lar vote  to  the  extent  of  $224,800,000.  In  the  opinion  of  the  Secretary  of  Agri- 
culture, during  the  fiscal  years  of  1919-1920  and  1920-1921,  a  total  of  one  bil- 
lion dollars  from  all  sources  will  be  available  for  road  improvements. 

SPECIAL  FACILITIES  FOR  AGRICULTURAL  CREDIT: 

The  Federal  Farm  Loan  Board  estimates  that  American  farmers  need 
credits  amounting  to  four  billion  dollars  annually.^  The  necessity  for  this  credit 
has  arisen  partly  from  the  increased  costs  of  operation  which  the  farmer  has 
been  obliged  to  meet.  Thus  in  the  decade  1900-1910  the  following  increases 
occurred: 

Value  of  farm  buildings 77.8% 

Value  of  implements  and  machinery 68.7% 

Expenditure  for  labor 32.3% 

Expenditure  for  fertilizers 115    %* 

Increasing  operating  costs  make  it  imperative  that  the  farmer  be  provided 
with  larger  sums  of  working  capital.  The  census  of  1910  shows  a  total  farm 
mortgage  indebtedness  of  $2,293,000,000,  an  increase  of  110%  over  that  in  1890. 


'Rpt.  Sec.  of  Agri.   (1919). 
= Ibid. 

'  By  Federal  Farm  Loan  Board. 
*  Federal  Census  of  1910. 


14 


The  geographic  distribution  of  farm  mortgages  has  not  been  uniform.  In 
the  West  Central  States  45%  of  farms  were  mortgaged,  while  in  the  South 
Atlantic  States  13%  and  in  the  South  Central  States  only  8.2%.^  Southern 
farmers  in  the  past  have  depended  to  a  larger  extent  upon  personal  credit  than 
have  northern  farmers  and  this  condition  has  been  attended  by  many  abuses. 

The  total  debt  of  American  farmers  in  1913  was  given  as  $5,000,000,000, 
an  average  of  considerably  over  $1,000  per  farmer.  This  amount  was  divided 
as  follows: 

Real  estate  mortgages $2,795,000,000 


Chattel  mortgages 

Crop  liens  (other  than  cotton), 

Cotton  crop   liens 

Debts  to  local  merchants 

Other  unsecured  debts 


700,000,000 
450,000,000 
390,000,000 
250,000,000 
410,000,000 


NATIONAL  LEGISLATION: 

1.  Pertinent  Provisions  of  the  Federal  Reserve  Act: 

The  Federal  Reserve  Act  of  1913  contains  two  provisions  of  importance- 
to  the  farmer.  The  first  of  these  aims  to  facilitate  the  solution  of  his  short- 
time  credit  problem.  It  provides  that  commercial  paper  arising  from  agricul- 
tural or  livestock  transactions  with  a  maturity  not  over  six  months  may  be  re- 
discounted  by  mem.ber  banks  at  any  of  the  twelve  federal  reserve  banks.  Under 
this  clause  local  and  country  banks  are  more  willing  than  formerly  to  grant 
short-time  credit  to  farmers  because  they  know  that  funds  thus  loaned  need 
not  be  tied  up  for  half  a  year,  but  can  readily  be  regained  through  discount- 
ing at  a  federal  reserve  bank  in  case  of  necessity.  The  six  months'  time  limit 
is  a  distinct  concession  to  the  financial  needs  of  the  farmer  and  the  nature  of 
his  occupation.  The  maturity  of  all  commercial  paper,  other  than  that  based 
on  agricultural  or  livestock  purposes,  eligible  for  rediscount  must  not  exceed 
ninety  days.  It  was  realized  that  farming  is  a  business  in  which  the  proceeds 
from  production  cannot  be  expected  to  reach  the  farmer  sooner  than  five  or 
six  months,  but  that  during  all  of  this  period  he  stands  in  need  of  working 
capital.  The  extent  to  which  farmers  have  availed  themselves  of  the  short- 
time  credit  facilities  offered  by  this  provision  of  the  Federal  Reserve  Act  may 
be  indicated  by  the  following  table.-  This  table  cannot  show  the  amount  of  cur- 
rent credit  granted  on  paper  not  rediscounted,  or  on  paper  accepted  by  banks 
not  members  of  the  federal  reserve  system. 

Amounts  of  Agricultural  and  Live-Stock  Paper  with  90-Day  to  6-Months'  Maturity  Redis- 
counted by  the  Federal  Reserve  Banks  and  Per  Cent  That  These  Agricultural  Credits 
Are   on  the  Total   Credits   Discounted 


Month  1915 

January $611,400 

February 8«5  200 

March    1,180,800 

April    1,643,000 

May    2,382  300 

June   2,503,200 

July   1,715,400 

August   1,022,400 

September 1.088.600 

October   1.892,000 

November   2,505,700 

December    2,254.400 


Total    $19,684,000 

;;Ibid. 

^  Annual  Reports  of  Governor  of  Federal  Reserve  Bank. 

15 


Total 

Total 

Per  Cent 

Per  Cent 

Discounts 

1916 

Discounts 

3.1 

$1,515,400 

9.0 

4.5 

1,006,100 

6.0 

6.0 

1,203,000 

7.2 

8.4 

1,767,300 

10.5 

12.1 

2,390,900 

14.2 

12.7 

2,926,400 

17.4 

8.7 

1,824,700 

10.8 

5.2 

1,043,200 

6.2 

5.5 

960,400 

5.7 

9.6 

851,500 

5.1 

12.7 

884,800 

5.3 

11.5 

444,200 
$16,817,900 

2.6 

Total  Total 

Percent  Per  Ceijt 

Month  1917  Discounts                    1918  Discounts 

January $591,882  2.0  $6,310,520  4.0 

February 471.254  1.6                       4,492,772  2.9 

March 532,279  1.8                      7,662,858  4.9 

April    996,804  3.4  12,375,985  8.0 

May    2,473,780  8.5  28,216,782  18.0 

June 3,139,952  10.8  21,701,688  13.9 

July    3,310,352  11.4  25,263,781  16.1 

August    1,610,709  5.5                       8,840,308  5.7 

September 1,401,135  4.8                       5,705,274  3.6 

October   2,370,937  8.2  11,931,131  7.7 

November   ...  5.955,365  20.4  13  205  550  8.4 

December 6,276,500  21.6  10,539,934  6.8 

Total $29,130,949  $156,245,243 

The  second  provision  of  the  Federal  Reserve  Act  of  special  value  to  farm- 
ers was  that  lifting  the  restriction  upon  national  banks  from  accepting  real 
estate  as  security  for  bank  loans.  This  section  of  the  Act  authorizes  national 
banks  not  located  in  federal  reserve  cities  to  make  loans  on  improved  and  un- 
encumbered farm  land  and  real  estate  in  amounts  not  to  exceed  50%  of  the 
actual  value  of  such  for  periods  not  over  five  years.  National  banks  are  per- 
mitted to  make  such  real  estate  loans  to  within  25%  of  their  capital  and  sur- 
plus, or  to  within  one-third  of  the  amount  of  their  time  deposits.  This  provi- 
sion made  it  possible  for  farmers  to  obtain  long-time  credit  up  to  five  years  by 
mortgaging  their  land  and  buildings.  It  also  has  an  indirect  effect  upon  the 
supply  of  rural  short-time  credit,  because  bankers  are  more  willing  to  loan  to 
reputable  farmers  on  their  promissory  notes  when  they  know  such  farmers  to 
be  owners  of  land  which  if  necessary  could  be  taken  by  the  bank  for  default  of 
repayment.  Of  course  the  actual  mortgaging  of  land  to  obtain  working  capital 
is  costly  and  therefore  is  seldom  done ;  nevertheless  the  fact  that  the  applicant 
for  credit  possesses  an  acceptable  security  tends  to  increase  the  readiness  of 
bankers  to  make  advances  on  promissory  notes.  The  advantage  of  the  clause 
of  the  law  to  the  farmer  has  been  affected  by  the  enactment  of  the  Federal 
Farm  Loan  Act. 

THE  FARM  LOAN  ACT: 

The  Farm  Loan  Act  was  passed  July  17,  1916.  It  has  nothing  to  do  with 
the  current  financing  of  farmers,  but  was  designed  to  meet  their  needs  for 
long-term  credit.  It  created  a  dual  system  of  banks  to  provide  long-time  credit 
based  on  agricultural  real  estate  as  security. 

The  federal  land  banks  get  funds  by  the  issuance  and  sale  of  farm  loan 
bonds,  in  denominations  of  $25.00  and  $50.00.  The  original  capital  is  mini- 
mum of  $750,000  divided  into  shares  of  $5.00  each.  Joint  stock  land  banks  are 
also  authorized  to  issue  such  bonds. 

Mortgages  under  the  farm  loan  system  must  contain  an  amortization  pro- 
vision whereby  the  principal  is  to  be  paid  in  installments  extending  over  a 
period  of  from  five  to  forty  years.  The  Board  favors  a  mortgage  term  of  thirty- 
six  years.  It  has  also  made  a  ruling  on  the  prepayment  of  mortgage  loans. 
Five  years  after  a  loan  is  made,  the  borrower  can  make  additional  payments  of 
$25.00  or  any  multiple  thereof  for  the  reduction  or  full  payment  of  the  prin- 
cipal on  any  regular  installment  date.  Thus  five  years  after  the  date  on  which 
a  mortgage  loan  is  contracted,  a  farmer  may,  if  financially  able  to  do  so,  wipe 

16 


out  his  indebtedness,  even  though  it  was  contracted  for  a  much  longer  period. 
The  rate  of  interest  on  mortgage  loans  at  the  beginning  of  the  system  was  5%. 
Since  then  it  has  been  increased  to  5y2%-  The  maximum  interest  that  may  be 
charged  is  6%. 

The  Act  fixes  the  Hmits  of  individual  loans  at  $100.00  and  $10,000,000. 
Feeling  that  these  are  too  low,  the  Board  has  made  a  recommendation  that 
these  be  Changed  to  $500.00  and  $25,000. 

From  1917  to  1919  the  number  of  farm  loan  associations  increased  from 
1,939  to  3,890,  so  that  very  few  rural  communities  do  not  now  have  one.  From 
the  beginning  of  the  system  they  have  made  a  total  of  106,929  loans  to  the 
amount  of  $282,007,781,  the  average  loan  being  for  $2,637. 

The  loans  amounting  to  $134,554,920  granted  by  the  federal  land  banks 
during  1919  were  made  for  the  following  purposes : 

11%  for  purchase  of  mortgaged  land. 

2%  for  purchase  of  other  land. 
59%  for  payment  of  existing  mortgages. 

9%  for  buildings  and  improvements, 

2%  for  purchase  of  implements  and  equipment. 

3%  for  purchase  of  livestock. 

5%  for  purchase  of  capital  stock  as  required. 

9%  for  miscellaneous  purposes.  , 

COOPERATIVE  CREDIT  PLANS: 

We  next  come  to  consider  the  situation  with  respect  to  rural  credits  not 
based  on  land  security.  The  most  outstanding  feature  in  this  regard  is  the 
operation  of  cattle  loan  companies.  These  companies  are  corporations  char- 
tered under  state  laws  and  dealing  in  financial  transactions  of  large  amounts. 
The  chief  function  is  the  financing  of  stock-raisers  and  cattlemen  through  a 
feeding  season  and  less  frequently  through  a  period  of  stock  development.  The 
loan  company  endorses  the  cattle  note  and  rediscounts  it  at  the  banks  at  a  rate 
of  2  to  3%  lower  than  the  rate  which  it  charges  the  borrowing  ranchmen.  The 
cost  of  making  a  loan  is  about  1  to  11/2%,  so  that  the  difference  is  their  profit. 
The  size  of  loans  varies  from  a  few  hundred  dollars  all  the  way  up  to  a  milhon 
dollars.  The  yearly  business  of  these  companies  amounts  to  several  hundred 
million  dollars.  The  average  company  loans  about  $5,000,000  yearly.  Most 
of  these  stock  loans  are  for  a  period  of  six  months,  although  when  made  upon 
livestock  for  development  purposes  they  usually  run  for  two  years. 

A  form  of  personal  credit  that  has  been  much  availed  of  by  farmers  in  this 
country  has  been  that  granted  on  the  purchase  of  farm  implements  and  ma- 
chinery. Although  no  statistics  are  readily  available  for  International  Harves- 
ter Company,  which  practically  controls  this  line,  stated  in  a  hearing  before  the 
Bureau  of  Corporations  in  1913  that  one-third  of  its  domestic  business  was  upon 
a  long-time  credit  basis  for  periods  longer  than  were  satisfactory  to  the 
company. 

There  exists  a  great  need  for  personal  credit  among  small  farmers  not  in 
strong  financial  circumstances,  nor  owning  land.  The  legislation  outlined  above 
has  taken  care  of  the  landowning  farmer  and  the  man  with  good  credit  in  his 
financial  needs,  but  the  obscure,  landless  farmer  is  still  unprovided  for.  A  re- 
cent investigation  by  the  Department  of  Agriculture  in  the  Southern  States 

17 


revealed  that  60%  of  the  farmers  were   still  working  under  the   "advancing 
system."* 

CREDIT  UNION  LEGISLATION  IN   THE  UNITED  STATES: 

An  agricultural  credit  union  is  a  cooperative  association  incorporated  for 
the  purposes  of  promoting  thrift  among  its  members,  and  to  enable  them  to 
obtain  for  productive  purposes  moderate  loans  for  short  periods  at  reasonable 
rates  of  interest.  Such  a  union  is  formed  entirely  for  cooperation  among  its 
members,  and  not  with  the  view  of  earning  financial  profits.  It  is  intended  to 
be  a  local  or  community  organization  into  which  the  idle  money  resources  of 
the  neighborhood  shall  be  pooled,  and  then  advanced  in  loans  for  the  benefit  of 
members  engaged  in  productive  work.  In  short,  it  performs  the  functions  of 
a  commercial  bank  for  the  small  farmer  in  supplying  his  short-time  credit 
needs  in  the  manner  most  advantageous  to  him. 

From  1913  to  1917  nine  states  passed  laws  providing  for  the  organization 
and  incorporation  of  credit  unions  and  defining  their  powers  and  privileges. 
These  states  are  scattered  from  Massachusetts  to  Texas,  thus  representing 
many  different  sections  of  the  United  States.  New  York  appears  to  have  been 
the  leader  of  this  kind  of  legislation,  its  statute  having  been  enacted  May  17, 
1913,  while  that  of  Texas  came  four  years  later  on  April  4,  1917.  The  Texas 
act  also  authorizes  associations  to  engage  in  other  forms  of  cooperative  en- 
deavor besides  that  of  banking,  and  the  demand  for  legislation  of  this  kind  is 
growing. 

AGRICULTURAL  EDUCATION  AND  INFORMATION: 

Land  Grant  Colleges  (Act  of  1862). 

In  1918  land  grant  colleges  had  plants  and  endowments  valued  at  $184,- 
000,000,  annual  incomes  aggregating  $47,700,000  and  45,000  students  in  full  or 
part  time  agricultural  courses. 

Agricultural  Extension  Act  (May  8,  1914). 

The  following  is  one  of  the  main  provisions  of  the  Agricultural  Extension 
Act: 

This  statute  appropriated  $480,000  annually  for  extension  work,  $10,000  to 
go  to  each  state  as  provided.  There  was  an  additional  appropriation  of 
$600,000  for  the  fiscal  year  following  that  in  which  the  $480,000  first  becomes 
available,  and  for  each  year  thereafter  for  seven  years  a  sum  of  $500,000  more 
than  the  sum  for  each  preceding  year.  For  each  year  thereafter  there  is  per- 
manently appropriated  $4,100,000  in  addition  to  the  foregoing  $480,000. 

In  1917  the  extension  service  had  about  3,500  workers,  but  by  November, 
1918,  it  comprised  6,731  regular  and  special  workers  as  follows  :- 

Regular  staff 1,513 

County  agent  work 2,732 

Demonstration  work 1,724 

Boys'  and  Girls'  clubs  activities 762 


6,731 


Annual  Report  of  Secretary  of  Agriculture  (1918). 
Ibid. 

18 


The  Smith-Hughes  Act  of  1917: 

The  following  are  the  main  provisions  of  the  Vocational  Education  Act 
which  relate  to  agriculture: 

For  paying  the  salaries  of  teachers,  supervisors  and  directors  in  agricul- 
tural subjects  this  statute  made  an  initial  appropriation  of  $500,000,  this  sum 
to  be  increased  by  each  annual  appropriation  until  1926,  after  which  date  there 
is  to  be  appropriated  $3,000,000  annually  for  this  appropriation. 

Such  sum  shall  be  apportioned  to  the  states  in  the  ratio  that  their  rural 
population  bears  to  the  total  rural  population  of  the  continental  United  States 
(by  later  Federal  Census) .  Allotment  to  any  state  shall  not  be  less  than  $5,000 
for  any  fiscal  year  prior  to  1923;  nor  less  than  $10,000  for  any  fiscal  year  there- 
after. 

For  cooperating  with  the  states  in  preparing  teachers  and  directors  of 
agricultural  subjects,  and  teachers  of  trade  subjects,^  there  is  appropriated  for 
the  fiscal  year  June  30,  1918,  the  sum  of  $500,000,  the  amount  of  which  appro- 
priation is  to  be  increased  until  1921,  after  which  year  there  is  to  be  an  an- 
nual appropriation  of  $1,000,000  to  be  alloted  to  the  states  in  the  proportion 
that  their  respective  population  bears  to  the  total  population  of  the  United 
States. 

ANNUAL  FEDERAL  GRANTS  FOR  VOCATIONAL  EDUCATION  IN  THE  UNITED 

STATES^ 

Salaries  of  For 

Salaries  of  Agri.         Teachers  in  For  Teacher       Federal  Board 

Year  Ending                              Teachers,  Super-     Trade,  Industry,  Training  for  Vocational 

June  30                                    visors.  Directors     Home  Economics  Purposes  Education 

1918 $548,000               $566,000  $546,000  $200,000 

1919 748,000                 796,000  732,000  200,000 

1920 1,024,000              1,034.000  924,000  .  200,000 

1921 1.268.000               1,278,000  1,090,000  200,000 

1922 1,514,000               1,525,000  1,090.000  200,000 

1923 1,761,000               1,772,000  1,090,000  200,000 

1924 2  009,000               2,019.000  1,090,000  200,000 

1925 2,534,000               2,556.000  1,090.000  200,000 

1926 3,027,000               3,050,000  1,090,000  200,000 

Thereafter 3,027,000  3,050,000  1,090,000  200,000 

The  system  of  vocational  education  has  large  possibilities  for  usefulness. 
In  its  report  for  1919  the  Federal  Board  stated  that  there  is  still  a  large  group 
of 'boys,  already  engaged  in  work  on  farms,  who  have  not  yet  been  reached  by 
vocational  education.  Means  should  be  devised  for  bringing  these  boys  into 
contact  with  the  system  and  affording  them  technical  instruction.  Some  of  the 
states  have  provided  evening  schools  or  short-time  winter  courses  as  a  means 
to  this  end.  Vocational  training  should  also  be  made  possible  for  the  injured 
veterans  of  the  past  war.  Many  of  these  men  are  capable  of  being  trained  as 
farm  managers,  and  in  the  Hghter  tasks  of  fruit  and  poultry  raising,  truck  gar- 
dening, bee  culture  or  dairying.  The  feasibility  of  this  plan  was  demonstrated 
even  during  the  war  by  agricultural  schools  in  France,  Italy,  and  Germany. 

CONCLUSIONS: 

From  the  above  survey  it  would  appear  that  the  committee  should  stress 
the  following  in  drawing  up  a  statement  as  to  policies  for  agriculture  in  the 
United  States: 


^  This  appropriation  is  not  separated  between  agriculture  and  trade. 
'Bulletin  13,  Federal  Board  of  Vocational  Education  (March,  1918). 

19 


(1)  Livestock  and  dairy  products  must  sell  higher  with  relation  to  the 
price  of  grains,  if  production  of  meat  and  milk  is  to  be  maintained. 

(2)  The  higher  wages  paid  in  cities  and  industrial  centers  are  draining 
the  farms  of  skilled  and  reliable  help.  While  wages  on  farms  are  lower  rela- 
tively, they  are  as  high  as  the  farmer  can  afford  to  pay  in  view  of  the  prices 
received  for  his  products.  In  some  sections,  more  particularly  in  the  fruit  and 
truck  growing  sections,  perhaps  some  good  can  be  done  through  the  re-distribu- 
tion of  alien  laborers,  but  in  the  great  surplus-producing  states  where  machinery 
is  largely  used,  no  relief  can  be^xpected  from  this  source.  Unless  prices  of  farm 
products  are  such  as  to  enable  the  farmer  to  compete  with  the  industries  for 
skilled  labor,  it  seems  probable  that  agricultural  production  will  be  adjusted  to 
what  the  former  can  produce  with  the  labor  of  himself  and  family. 

(3)  Long-time  credit  with  real  estate  as  security  is  apparently  available 
to  farmers.  There  is  special  need  for  short-time  personal  credit.  The  replies 
to  the  questionnaires  thus  far  received  emphasize  this  need. 

(4)  Recent  national  legislation  has  provided  comprehensive  plans  for  voca- 
tional and  agricultural  training.  Whether  our  national  government  should 
further  aid  rural  education  through  taxation  is  a  serious  question  for  the  con- 
sideration of  the  committee.  The  tendency  toward  increasing  appropriations 
by  the  states  for  these  purposes  will  no  doubt  continue. 

(5)  The  fertility  of  the  soil  is  our  great  national  asset.  It  is  being  de- 
pleted very  rapidly.  Therefore,  the  government  should  do  everything  possible 
to  encourage  the  importation  of  fertilizing  material  at  prices  which  will  en- 
courage farmers  to  use  it. 

(6)  Farmers  need  and  serve  the  united  efforts  of  all  at  this  time  to  open 
up  exports,  particularly  on  meat,  milk  products  and  wheat. 

(7)  Marketing  facilities  will  become  of  increasing  importance  as  wages 
and  other  costs  and  investments  go  up  and  as  railway  rates  increase. 

(8)  While  the  National  Bureau  of  Markets  performs  a  good  service  it  has 
not  made  a  survey  of  marketing  facilities  by  rail  and  water,  and  of  the  whole- 
sale and  retail  facilities  in  our  cities.  The  committee  can  well  urge  that  a  na- 
tional commission  be  appointed  to  report  on  the  coordination  of  rail,  water  and 
motor  transport  with  adequate  facilities  for  receiving,  handling  and  transport- 
ing foods  within  the  cities.  Such  a  commission  could  render  a  great  national 
service  at  this  time. 

SUGGESTIONS  RECEIVED  AND  SUBMITTED  FOR  CONSIDERATION: 

From  the  questionnaires  thus  far  received  it  is  evident  that  the  prepon- 
derant opinion  among  producers  is  as  follows: 

Probably  the  greatest  causes  of  dissatisfaction  among  both  farmers  and 
consumers  of  farm  products  are  the  violent  price  fluctuations  from  day  to  day 
and  week  to  week  and  the  wide  margin  between  the  producer  and  the  con- 
sumer. 

As  to  price  fluctuations,  it  is  probable  that  during  the  next  ten  to  twenty 
years,  if  nothing  be  done,  these  fluctuations  will  be  greater  and  more  violent 
than  before  the  war.  During  a  period  of  unstable  prices  the  tendency  is  for 
farmers  to  reduce  their  livestock  production  and  give  less  concern  to  main- 
tenance of  the  fertility  of  the  soil.  A  period  of  price  instability  is  not  only  a 
time  of  inefficient  production,  but  also  a  time  of  great  unrest. 

20 


The  scientific  study  is  urged  of  the  whole  system  of  agricultural  prices 
with  a  view  to  ascertaining  how  they  are  made  and  the  forces  which  influence 
them,  and  with  a  view  to  recommending  measures  which  may  possibly  reduce 
the  frequency  of  unnecessary  fluctuations. 

Permissive  legislation  which  will  tend  to  encourage  farmers  to  organize 
associations  for  the  extension  of  personal  credit.  Farm  production  is  greatly 
handicapped  now  by  lack  of  working  capital. 

More  complete  monthly  reports  by  the  Department  of  Agriculture  of  the 
numbers  of  marketable  livestock  on  farms  and  the  prospective  demand  for 
livestock  products,  both  at  home  and  abroad,  to  the  end  that  supply  and  de- 
mand may  be  brought  to  a  more  stable  basis. 

Farmers  generally  are  opposed  to  national  speedways,  but  will  favor  good 
roads  to  farmers'  markets. 

There  is  widespread  and  vigorous  demand  among  farmers  of  the  entire 
country  for  legislation  which  will  permit  them  to  bargain  collectively. 


21 


Civil  Service  and  Retirement 


Report  of  Sub-Committee 


JAMES  R.  GARFIELD 

Chairman  t 


WILLIAM  E.  MOSHER 
Staff  Assistant 


CIVIL    SERVICE    AND    RETIREMENT 

General  Survey  of  the  Problem — More  than  700,000  persons  are  in  the  em- 
ploy of  the  Federal  Government — Lack  of  any  standardization  of  titles  or 
classification  of  employees  in  accordance  with  these  titles — Widely  divergent 
policies  as  to  compensation  have  been  pursued  by  various  departments — "Statu- 
tory" and  "Lump  Sum"  salary  provision — War  salaries — In  the  main,  salaries 
have  remained  stagnant — Employment  conditions  as  to  (a)  hours  and  over- 
time ;  (b)  leave ;  (c)  promotion ;  (d)  restrictions ;  (e)  retirements^Other  fac- 
tors affecting  efficiency :  (a)  probation ;  (b)  efficiency  ratings ;  (c)  training — ^The 
turn-over  in  Federal  Employment — Proposed  Remedies :  (a)  standard  definition 
of  classes  of  employees  as  worked  out  by  Reclassification  Commission ;  (b)  sal- 
aries should  be  standardized  and  increased  to  a  fair  and  reasonable  rate ;  (c)  a 
central  personnel  agency,  preferably  the  Civil  Service  Commission,  should  keep 
current  the  classification  and  salary  scale,  and  exercise  supervision  over  vari- 
ous phases  of  employment  policy ;  (d)  an  Advisory  Council  to  the  Civil  Service 
Commission  should  be  constituted,  supplemented  by  personnel  committees  in 
the  departments. 

GENERAL  SURVEY 

High  standards  of  achievement  in  the  administration  of  the  work  of  the 
Government  require  today  as  never  before  a  thoroughly  efficient  and  loyal  per- 
sonnel. Efficiency  and  loyalty  in  public  service,  just  as  in  industrial  enterprises, 
depend  on  adequate  compensation,  fair  treatment  and  reasonable  opportunity 
for  advancement ;  in  other  words,  on  a  well-balanced  and  progressive  employment 
and  wage  policy.  Accepted  practice  dictates  that  such  a  policy  should  provide 
not  alone  for  due  recognition  and  reward  of  merit,  but  also  for  the  elimination 
of  the  unfit  and  super-annuated  according  to  reasonable  standards  of  efficiency. 

The  Fact. 

Criticism  of  the  Federal  Civil  Service  and  demands  for  its  reform  seem  to 
be  reaching  a  climax,  if  one  is  to  judge  from  the  reports  that  come  from  both 
Houses  of  Congress,  from  Administrative  officials,  and  Federal  employees,  as 
well  as  reports  appearing  generally  in  the  public  press.  A  common  charge 
brought  against  the  service  by  these  critics  is  that  it  is  inefficient  and  extrava- 
gantly administered,  that  many  workers  are  unfit  for  their  work  and  not  a  few 
too  old  to  render  satisfactory  service.  A  more  recent  development  is  that  the 
employees  are  becoming  so  dissatisfied  with  present  salary  and  employment 
conditions  that  they  are  leaving  the  service  in  alarmingly  large  numbers. 

Although  there  exists  at  the  present  time  no  such  standard  for  measuring 
the  efficiency  of  the  Government  establishments,  as  is  applied  to  profit  making 
concerns,  the  increasing  number  of  complaints  as  to  the  slowness  and  the  in- 
accuracy in  which  the  administration  of  various  departments  function  may  be 
taken  as  an  index  of  a  lowered  standard  of  efficiency.  As  the  chief  test  of  suc- 
cess will  be  the  amount  and  quality  of  service  rendered  to  the  public,  it  is  clear 
that  general  dissatisfaction  on  the  part  of  the  public  indicates  the  need  of  re- 
viewing and  remedying  the  policies  now  pursued. 

The  Effect. 

The  state  of  the  morale  of  the  wor  dng  force  and  the  number  of  separation^ 

25 


from  the  service  are  now  considered  a  reliable  index  of  inefficient  personnel  ad- 
ministration. Signs  of  impaired  morale  have  been  recently  noted  by  experi- 
enced and  impartial  observers,  who  refer  particularly  to  the  growing  lack 
of  interest  and  enthusiasm  on  the  part  of  the  rank  and  file  of  the  workers. 
More  tangible  evidence  of  lowered  morale  appears  in  the  records  of  the  volun- 
tary separation  from  the  service.  Administrative  officials  have  frequently 
testified  during  recent  months  that  the  loss  of  old  and  experienced  employees 
in  the  past  year  or  two  has  seriously  reduced  the  efficiency  of  their  work,  and 
is  rapidly  making  efficient  administration  almost  impossible.  The  large  turn- 
over is  accompanied  by  an  increasing  difficulty  in  securing  suitable  recruits  for 
the  vacant  positions.  A  considerable  amount  of  testimony  gathered  from  col- 
leges and  universities  throughout  the  country  indicates  in  what  disrepute  ser- 
vice for  the  Government  has  now  fallen. 
Causes.  ,v 

The  causes  of  the  growing  inefficiency,  the  lowered  morale,  and  the  large 
number  of  separations,  are  complex  in  character,  but  the  following  may  be  con- 
sidered the  most  significant : 

In  a  number  of  departments  no  consistent  effort  is  made  to  check  up  the 
efficiency  of  the  employees,  nor  to  test  out  the  qualifications  of  new  employees 
on  probationary  appointment.  Generally  speaking,  a  dismissal  for  inefficiency 
of  new  or  old  employees  is,  therefore  comparatively  rare.  In  the  matter  of 
promotion  also  there  is  no  consistent  policy  that  would  guarantee  the  proper 
recognition  of  merit.  This  opens  the  door  to  charges  against  supervisory  offi- 
cials of  personal  favoritism  and  of  political  influence,  which  are  to  say  the  least, 
not  conducive  to  the  development  of  a  sound  morale. 

One  outstanding  feature  of  the  administration  of  most  departments  is  that 
administrators  occupying  positions  both  of  minor  and  major  responsibility  are 
not  given  that  freedom  of  action  so  necessary  for  successful  administration.  A 
degree  of  freedom,  depending  naturally  on  the  character  of  the  work,  is  quite 
necessary  for  the  development  of  confidence  and  enthusiasm  in  one's  work  that 
is  at  the  very  foundation  of  a  satisfactory  morale.  The  policy  of  control  from 
above  has  gone  even  farther  in  some  organizations  and  given  birth  to  harassing 
restrictions  on  personal  action  and  personal  freedom  that  have  resulted  in  a 
large  number  of  separations  of  employees  of  ability  and  spirit. 

The  Congressional  practice  of  definitely  specifying  salaries  for  large  num- 
bers of  positions  by  statute  and  providing  maximum  salary  limits  for  large 
classes  of  employees  has  been  another  fruitful  source  of  dissatisfaction.  It  has 
made  for  an  inadequate  salary  scale  and  has  caused  wide  variations  in  compen- 
sation between  the  departments  with  statutory  limitations  and  those  without, 
and  even  between  comparable  positions  in  the  same  department,  some  of  which 
are  subject  to  statutory  limitations  and  others  not. 

Lack  of  standard  definitions  of  positions  and  titles  that  could  be  applied  to 
all  Departments  has  increased  the  confusion  immeasurably. 

Furthermore,  no  consistent  policy  as  to  salary  increases  commensurate 
with  the  increasing  cost  of  living  and  the  advancing  rates  paid  in  outside  em- 
ployment, has  been  another  source  of  general  discontent. 

A  similar  lack  of  policy  concerning  various  other  employment  conditions 
has  resulted  in  the  most  divergent  practices  in  the   different   Departments. 

26 


Illustrations  may  be  found  in  the  provisions  as  to  the  sick  and  annual  lea.ve 
privilege,  payment  or  non-payment  for  over-time,  night  work,  etc. 

Generally  speaking,  the  great  body  of  those  working  for  the  Federal  Gov- 
ernment feel  that  they  are  working  for  one  and  the  same  employer  and  natur- 
ally expect  to  be  treated  according  to  fair  and  liberal  and  just  policies.  But 
as  a  matter  of  fact,  particularly  in  these  days  when  employment  relations  are, 
becoming  more  and  more  subject  to  criticism,  the  Federal  employees  are  begin- 
ning to  realize  that  good,  bad  and  indifferent  policies  operate  side  by  side,  that 
traditions,  repressive  measures,  and  indifference  to  working  conditions  may  be 
found  in  some  departments  in  contrast  to  really  enlightened  and  modern  policies  . 
of  employment  that  have  been  adopted  in  others.  As  those  belonging  to  the 
less  favored  groups  have  practically  no  method  of  appeal  to  so  distant  and 
impersonal  an  employer  as  the  United  States  Government,  they  find  the  only 
recourse  remaining  is  to  nurse  their  dissatisfaction  or  seek  employment  else- 
where. In  a  word,  therefore,  chaotic  wage  and  employment  conditions  are  the 
sufficient  cause  for  the  spirit  of  unrest  and  discontent  that  is  rapidly  coming 
to  prevail  among  the  rank  and  file  of  the  Federal  employees. 

Remedies. 

The  remedy  for  the  conditions  just  outlined  is  that  the  Government  as 
an  employer  should  work  out  and  adopt  a  comprehensive  employment  and  wage 
policy  that  would  guarantee  equal  and  just  treatment  to  its  army  of  workers. 
The  basis  of  such  a  policy  must  be  a  thorough-going  classification  of  positions 
with  respect  to  qualifications  required  and  duties  involved.  Jt  should  then  de- 
termine after  investigating  the  various  factors  involved,  up(*n  a  fair  wag^  and 
salary  scale  that  will  really  be  equitable.  In  the  interest  of  a  reasonable  degree 
of  uniformity  and  justice  it  will  doubtless  be  found  necessary  to  centralize 
supervision  over  matters  of  classification,  salaries,  and  other  employment  con- 
ditions, under  some  single  agency.  The  Congressional  Joint  Commission  on  the 
Reclassification  of  Salaries,  after  having  made  a  careful  investigation  concern- 
ing the  inadequacies  and  discrepancies  in  the  wage  and  employment  policies  of 
the  Government,  has  worked  out  a  standard  classification  with  an  accompany- 
ing salary  scale  and  also  a  progressive  employment  policy.  It  recommends  the 
centralization  of  administration  of  these  polices  under  the  Civil  Service  Com- 
mission as  the  natural  agency  to  take  over  the  responsibilities  indicated.  The 
adoption  of  such  a  policy  will  be  entirely  in  keeping  with  recent  developments 
in  the  industrial  world  and  will  enable  the  Government  as  an  employer  to  take 
its  proper  position  among  the  leaders  in  the  very  important  field  of  enlight- 
ened employment  administration. 

EMPLOYMENT  POLICIES  OF  THE  FEDERAL  GOVERNMENT 

Classification  of  Civil  Service. 

It  is  estimated  that  the  Government  has  in  its  employment  during  the 
present  fiscal  year,  between  seven  and  eight  hundred  thousand  employees.  In 
Washington  alone  there  are  approximately  107,000  civilian  employees.  It  is 
evident  that  if  the  Government  in  the  capacity  of  employer  is  to  avoid  injus- 
tice,— probably  the  most  potent  influence  making  for  discontent — it  must  have 
some  well-organized  method  of  determining  which  of  its  700,000  employees  are 
doing  similar  work  in  order  to  pay  them  approximately  the  same  wage.    That, 

27 


is  to  say,  it  must  group  them  In  classes  according  to  their  qualifications  for 
the  positions  and  the  duties  involved  in  the  positions  occupied. 

How  far  the  Government  has  fallen  short  of  any  such  classification  is 
indicated  by  the  fact  that  the  Reclassification  Commission  discovered  that 
'about  105  different  titles  are  now  being  used  to  designate  what  proves  on 
examination  to  be  actually  one  single  class  of  positions.  On  the  other  hand, 
the  Commission  found  that  one  blanket  title,  that  of  "Clerk,  Class  I,"  is  used 
to  designate  what  might  reasonably  be  resolved  into  97  varieties  of  positions. 

It  is  clear  that  uniformity  in  compensation  is  quite  impossible  on  the 
basis  of  such  a  heterogeneous  use  of  titles  of  positions.  The  first  step  toward 
just  compensation  for  such  an  army  of  workers  as  are  now  employed  by  the 
Government  is,  therefore,  the  standardization  of  titles  and  the  classification  of 
all  employees  in  accordance  with  these  titles. 

Compensation.  ««  ' 

Entirely  apart  from  the  indiscriminate  use  of  titles  that  has  made  a  com- 
parison of  positions  impossible,  there  have  been  widely  divergent  policies  as  to 
compensation  that  have  been  pursued  by  the  various  departments  and  estab- 
lishments. These  policies  have  added  confusion  to  confusion  and  injustice  to 
injustice. 

"Statutory"  and  Lump  Sum. 

Probably  the  outstanding  cause  of  inconsistency  is  the  fact  that  Congress 
has  in  the  case  of  many  positions  determined  by  statute  both  the  exact  number 
and  character  of  employees  and  the  exact  amount  that  shall  be  paid  each  of 
them.  It  provides,  in  1920-1921,  that  one  of  the  bureaus  in  the  Interior  De- 
partment shall  have  twenty-four  clerks  of  class  one ;  similarly,  that  a  certain 
bureau  in  the  Department  of  Labor  shall  have  seventeen  clerks  of  class  one. 
Class  one  has  only  one  meaning,  namely,  that  all  clerks  in  the  class  shall  re- 
ceive $1200  per  year.  It  may  well  be  that  this  is  the  only  characteristic  they 
have  in  common.  In  the  same  way,  one  of  the  scientific  bureaus  is  to  have  five 
associate  geologists  at  $1800,  one  at  $1140,  one  at  $1380,  etc.  With  regard  to 
such  statutory  salaries  the  almost  invariable  policy  has  been  to  leave  them  un- 
altered regardless  of  the  fluctuations  of  the  purchasing  power  of  the  dollar  arid 
outside  competitive  conditions.  Not  an  inconsiderable  number  of  them  have  re- 
mained unchanged  for  a  long  period  of  time.  In  fact,  the  "National  Calendar" 
published  in  1833,  describes  the  duties  of  several  examiners  in  the  Treasury  so 
fully  that  they  may  easily  be  compared  with  positions  existing  today.  Com- 
parison of  salaries  shows  that  there  has  been  no  change  of  compensation  in 
these  91  years.  This  is  of  course  an  unusual  case,  but  on  the  whole,  "statu- 
tory" is  very  likely  to  imply  "static"  in  spite  of  shifting  market  conditions, 
the  changing  cost  of  living,  etc.  Along  side  the  more  or  less  fixed  statutory 
salaries  are  the  salaries' paid  from  lump  sum  appropriations.  Such  salaries  are 
determined  in  the  main  according  to  the  discretion  of  the  administrative  head 
of  the  organization.  If  he  is  liberal-minded  toward  his  subordinates  he  may 
pay  comparatively  high  salaries.  If,  on  the  other  hand,  he  is  ambitious  to 
have  his  organization  cover  a  wide  field  he  may  "save"  on  his  salary  list  and 
adopt  a  low  wage  policy.  The  way  is  thus  open  for  all  sorts  of  discrepancies. 
Indeed,  cases  have  been  discovered  where  the  range  of  salaries  paid  for  the 
same  work  exceeded  $1000.    In  the  same  department  evett,  men  with  the  same 

28 


duties,  possibly  working  side  by  side,  have  received  salaries  differing  by  as 
much  as  $500.  - 

Further  illustrations  are  not  necessary  to  prove  that  the  statutory  and 
lump  sum  methods  of  paying  for  personal  services  have  worked  grave  injus- 
tices and  been  the  cause  of  wide-spread  discontent. 

"War  Salaries." 

Another  factor  entered  into  the  salary  situation  during  the  war  when  the 
number  of  Federal  employees  at  Washington  increased  over  100  per  cent.  The 
rapid  development  of  several  war  organizations  such  as  the  War  Risk  Insur- 
ance Bureau,  the  Council  of  National  Defense,  the  United  States  Employment 
Service,  etc.,  produced  a  sudden  demand  for  a  large  corps  of  workers.  These 
organizations  were  compelled  to  go  into  the  open  market  and  meet  current 
market  conditions,  in  order  to  attract  from  the  outside  a  sufficient  clerical  and 
technical  force.  This  led  to  the  development  of  what  may  be  called  a  war 
.  scale  that  was  frequently  several  hundred  dollars  in  excess  of  what  was  being 
paid  for  the  same  type  of  work  in  the  older  established  bureaus.  The  average 
salary,  for  instance,  for  one  class  of  clerks  engaged  in  mail  routing  was  $878 
in  the  older  organizations  in  April,  1919,  whereas  in  certain  of  the  war-ex- 
panded organizations  it  was  $1116.  Illustrations  of  this  sort  might  be  multi- 
plied indefinitely.  The  war  sei-ved  to  make  the  salary  situation  more  acute 
and  the  need  of  revision  more  mandatory. 

"Stagnation  of  Salaries." 

But  perhaps  the  most  striking  evidence  of  the  lack  of  a  consistent  wage 
policy  on  the  part  of  the  Government  is  found  in  the  data  which  shows  salary 
movements  over  a  period  of  years.  Considering  the  average  salary  paid  to 
all  civilian  employees  in  Washington,  from  1893  to  1919,  it  appears  that  the 
average  figure  for  1893  was  $1096  and  for  1919  it  amounted  to  $1321,  exclusive 
of  the  bonus*.  The  average  increase  of  basic  pay  amounts  to  a  little  more  than 
20%,  with  the  bonus  included  it  would  be  approximately  40%,  while  the  retail 
prices  of  food  increased  in  this  same  period  about  159%.  Assuming  that  a 
progressive  employer  will  make  it  possible  for  his  employees  to  maintain  at 
least  approximately  the  same  standard  of  living  for  a  period  of  years,  it  is  evi- 
dent that  the  Federal  Government  as  an  employer  has  failed  to  observe  any 
such  principle  for  the  period  1893-1919. 

The  above  figures  covering  about  91,000  employees  are  borne  out  by  a  re- 
view of  the  salary  movements  among  certain  more  or  less  homogeneous  groups 
of  employees,  whose  work  has  been  fairly  constant  throughout  the  period  un- 
der consideration. 

The  116  clerks  in  the  General  Land  Office  of  the  Interior  Department,  for 
instance,  received  an  average  salary  of  $1188  in  1893;  whereas  the  average, 
without  the  bonus  for  the  total  number  (288),  in  1919,  was  $1193.  The  179 
Adjudicating  Clerks  in  the  same  office  received  an  average  of  $1473  in  1893 
and  practically  the  same  number  (170),  $1571  in  1919.  In  the  Coast  and  Geo- 
detic Survey  (Department  of  Commerce)  33  clerks  averaged  $1049  in  1893  and 
42  averaged  $1131,  in  1919.    If  these  figures  were  plotted  in  the  form  of  curves 


♦  A  bonus  of  $240  was  paid  for  the  year  1919-20  to  most  employees  receiving  an  annual  salary  up  to 
and  including  $2000.  This  bonus  amounts  to  a  24%  increase  for  those  receiving  $1000,  and  a  12%  in- 
crease for  those  receiving  $2000. 


for  the  groups  indicated  as  well  as  for  others  that  have  been  investigated,  the 
curves  would  resolve  themselves  almost  into  horizontal  lines. 

By  way  of  contrast,  mention  should  be  made  of  the  salary  movements  in 
three  comparable  groups;  (1)  the  Naval  Architects  and  Draftsmen,  (2)  the 
Compositors,  and  (3)  the  Pressmen  in  the  Government  Printing  Office.  On  ac- 
count of  outside  competition  or  the  power  of  organization  the  groups  named 
have  enjoyed  increases  in  salaries  ranging  from  100%  to  200%  more  than  the 
increases  for  other  typical  classes  of  workers. 

Considered  as  a  whole,  it  is  evident  that  the  Government  in  the  capacity 
of  employer  has  failed  to  establish  a  policy  of  compensation  that  would  make 
for  equity  and  justice.  The  absence  of  standardized  titles,  the  rigidity  of 
statutory  salaries  as  opposed  to  the  almost  unrestricted  flexibility  permitted 
in  the  bureaus  having  lump  sum  appropriations,  the  introduction  of  war  work- 
ers who  are  recruited  in  a  rising  market,  and  finally,  the  failure  to  take  into 
account  the  decrease  in  the  purchasing  power  of  the  dollar  during  recent  years 
have  been  sufficient  cause  for  untold  inconsistencies  and  inadequacies  in  the 
salary  scale  now  in  operation.  Such  conditions,  particularly  when  the  cost  of 
living  has  shifted  in  such  an  unprecedented  manner,  have  brought  about  a 
deep-seated  and  growing  dissatisfaction  with  Government  service.  Unmistak- 
able signs  of  this  dissatisfaction  are  to  be  found  in  the  reports  concerning  volun- 
tary separations  from  the  service.  These  reports  make  it  imperative  for  the 
Government  as  employer  to  adopt  a  compensation  policy  that  will  insure  a 
reasonable  living  wage  to  all  of  its  employees,  and  an  equitable  wage  that 
will  be  based  upon  the  principle  of  equal  pay  for  equal  work. 

EMPLOYMENT  CONDITIONS 

There  are  conditions  of  employment  that  so  definitely  affect  the  nature 
and  attractiveness  of  the  position  that  they  may  properly  be  considered  a  part 
of  the  compensation  itself.  Reference  is  here  made  to  such  matters  as  leave 
privileges,  the  hours  of  labor,  provisions  for  retirement,  opportunities  for  pro- 
motion, proper  working  conditions,  etc.  The  investigations  of  the  Reclassifica- 
tion Commission  proved  that  there  were  as  divergent  practices  in  connection 
with  these  conditions  as  with  regard  to  salaries  paid. 

Hours  and  Overtime. 

Although  there  seems  to  be  a  fairly  uniform  policy  pursued  in  connection 
with  hours  of  employment,  which  prescribes  a  normal  day  of  7  hours  for 
clerical  and  technical  workers,  and  of  8  hours  for  manual  workers,  it  was  dis- 
covered that  certain  groups  of  workers,  such  as  the  employees  in  the  National 
Zoological  Park,  the  Fire  Department,  and  watchmen  and  enginemen  in  various 
departments,  are  required  to  work  as  high  as  70  hours  per  week. 

There  is  no  such  uniform  practice,  however,  concerning  payment  of  over- 
time work,  for  Sunday  and  night  work.  Two  departments  engaged  in  such 
similar  work  as  the  Bureau  of  Engraving  and  Printing  and  the  Government 
Printing  Office,  pursue  entirely  different  practices,  the  latter  regularly  paying 
a  bonus  for  night  work,  whereas  the  former  makes  no  distinction. 

Leave. 

According  to  the  present  regulations,  the  granting  of  annual  and  sick 
leave  lies  within  the  discretion  of  the  administrative  officer.     As  a  matter  of 


common  practice,  however,  there  has  developed  a  fairly  well  established  custom 
of  .granting  thirty  days'  annual  and  thirty  days'  sick  leave.  In  spite  of  this, 
the  Commission  learned  of  certain  considerable  groups  among  whom  the  an- 
nual leave  period  ranges  from  no  leave  at  all  to  twenty  days.  Several  Depart- 
ments have  special  regulations  also  with  regard  to  Sundays  occurring  at  the 
beginning  or  end  of  the  leave  period.  A  variety  of  discrepancies  in  the  ad- 
ministration of  sick  leave  appear  as  well.  A  striking  illustration  is  that  of  the 
Bureau  of  Engraving  and  Printing  in  which  two  different  practices  are  found. 
According  to  prevailing  custom  the  employees  whose  salaries  are  fixed  by 
statute  may  have  an  aggregate  of  30  days'  sick  leave,  while  the  majority  whose 
salaries  are  paid  as  a  matter  of  fact  from  a  lump  sum,  have  no  sick  leave 
privileges  whatsoever. 

Promotion. 

One  of  the  most  important  aspects  of  a  good  position  is  whether  it  offers 
opportunity  for  promotion.  A  common  illustration  of  this  fact  is  the  very  low 
entering  wage  for  those  who  go  into  most  large  banking  and  mercantile  estab- 
lishments. The  promise  of  a  career  is  ordinarily  viewed  here  as  a  part  of  the 
compensation.  But  in  the  Government  service,  on  account  of  restrictions  on 
transfers  from  one  Department  to  another,  on  account  of  the  fact  that  the' 
highest  administrative  positions  in  most  bureaus  and  offices  may  be  filled  by 
appointment  rather  than  through  merit  promotions,  and  also  on  account  of  the 
rigid  organization  that  comes  as  a  result  of  statutory  positions  and  statutory 
salaries,  it  is  not  possible  for  large  numbers  of  employees  to  look  forward  to 
what  might  be  called  a  satisfactory  career.  As  a  consequence  it  may  be  claimed 
without  exaggeration  that  Government  employment  abounds  today  in  routine 
and  blind  alley  positions  which  deaden  initiative  and  ambition.  Limited  oppor- 
tunity for  advancement  is  probably  handicapping  the  Civil  Service  Commis- 
sion in  its  recruiting  campaign  as  much  as  any  other  single  disadvantage,  ex- 
cepting low  wages. 

Restrictions. 

The  proverbial  red  tape  in  the  Government  service  is  so  binding  in  a  num- 
ber of  instances  that  this  constitutes  a  further  disadvantage  for  the  employee. 
An  illustration  of  an  extreme  instance  of  this  type  of  restriction  is  found  in 
one  Department  which  prescribes  that  permission  shall  be  secured  for  the  use 
of  free  time  outside  working  hours.  This  limitation  covers  such  activities  as 
studying  in  school,  teaching,  publication  of  one's  own  productions,  whether 
dealing  with  departmental  matters  or  not,  etc.  Such  limitations  on  outside  ac- 
tivities are  peculiarly  disadvantageous  at  a  time  when  some  supplementary 
source  of  income  is  made  mandatory  by  the  low  salaries  now  being  paid,  par- 
ticularly to  the  higher  grade  workers  in  the  Government  service. 

A  number  of  statements  in  letters  from  university  presidents  and  profes- 
sors, indicate  that  restrictions  of  this  sort  are  known  outside  of  Government 
circles  and  serve  to  restrain  young  men  from  entering  the  Civil  Service.  This 
is  a  most  unfortunate  circumstance  as  the  colleges  and  universities  are  be- 
coming the  natural  source  of  supply  for  more  and  more  types  of  Government 
workers. 

Retirement. 

As  there  are  few  organizations  in  the  country  that  compare  with  the 

31 


Government  in  permanency  and  none  that  compare  with  it  in  size,  it  is  evident 
that  it  should  long  ago  have  adopted  a  progressive  and  reasonable  retirement 
program.  Not  having  done  so,  humane  considerations  practically  require  ad- 
ministrative officials  to  keep  in  their  employ  men  and  women  who  have  long 
since  passed  the  period  of  their  usefulness.  It  is  estimated  that  about  1800  em- 
ployees now  in  service  have  passed  the  65th  year,  the  normal  retiring  age. 
Among  this  number  cases  were  discovered  of  those  who  were  too  decrepit  to 
walk  to  office;  others  have  nearly  or  entirely  lost  their  eyesight,  which  pre- 
vents them  from  performing  their  usual  duties.  The  most  expensive  type  of 
retirement  system  is,  therefore,  actually  in  force  at  the  present  time.  It  is 
expensive  both  from  the  financial  side  and  from  the  point  of  view  of  efficiency. 
The  pace  of  the  work  is  noticeably  slackened  in  the  older  bureaus  where 
there  are  a  considerable  number  of  superannuated  employees,  or  of  those  who 
are  close  to  the  age  limit  for  retirement.  As  a  matter  of  common  experienca 
their  presence  exerts  a  demoralizing  influence  on  the  younger,  more  vigorous 
portion  of  the  working  force. 

OTHER  FACTORS  AFFECTING  EFFICIENCY 

A  similar  absence  of  policy  is  found  in  connection  with  the  methods 
adopted  whereby  the  Government  as  employer  might  ascertain  whether  it  is 
getting  a  fair  return  for  the  money  invested  in  its  pay-roll. 

Probation. 

The  probationary  period,  for  instance,  that  properly  constitutes  a  very 
vital  element  in  the  selection  of  new  appointees,  is  used  as  a  testing  out  period 
in  only  a  few  of  the  organizations.  In  almost  99  cases  out  of  100  a  probation- 
ary appointment  is  made  permanent  through  default  of  the  administration 
to  make  any  report  as  to  fitness  to  the  Civil  Service  Commission. 

EflSciency  Ratings. 

Efficiency  ratings,  which  are  beginning  to  play  so  important  a  part  in  the 
promotion  and  salary  policies  of  the  more  active  industrial  concerns,  have  re- 
ceived altogether  insufficient  attention  among  the  Government  executives. 
There  has  been  commendable  activity  along  this  line  in  several  departments, 
but  no  such  interest  as  modern  management  should  devote  to  this  very  vital 
problem. 

A  proper  system  of  efficiency  rating  will  make  possible  due  recognition  of 
increasing  efficiency,  which  is  not  now  consistently  done,  and  become  thus  the 
means  of  supplying  a  real  incentive  to  extra  effort  on  the  part  of  ambitious 
employees.  It  will  also  provide  such  standard  tests  that  the  Government  will 
be  justified  in  paying  what  may  be  termed  an  "efficiency  wage."  Conversely, 
if  the  Government  adopts  a  dependable  system  of  rating  efficiency,  it  will  be 
in  a  position  to  strike  off  the  pay-rolls  the  names  of  those  who  are  not  equal 
to  reasonable  demands  made  of  efficient  workers. 

Training. 

Another  aspect  of  employment  management  that  has  received  insufficient 
attention  on  the  part  of  the  Government  is  the  problem  of  training.  A  train- 
ing department  in  the  typical  up-to-date  manufacturing  plant  has  become  a 
permanent  fixture.     Its  primary  function  is  to  centralize  the  training  of  new 

32 


employees  in  a  separate  department  or  under  specially  selected  men  and  women. 
The  amount  of  money  being  expended  by  some  employers  at  the  present 
time  for  the  purpose  of  developing  a  good  training  system  indicates  how  con- 
vinced practical  business  men  are  of  the  fact  that  it  pays  to  train  the  workers. 

Some  of  the  Government  establishments  have  also  shown  themselves  to 
be  alive  to  this  movement.  Several  of  them  give  a  special  course  to  the  em- 
ployees who  are  coming  into  the  organization  for  the  first  time.  The  Bureau 
of  Internal  Revenue,  for  instance,  which  has  a  training  section  with  an  annual 
pay-roll  of  $10,150,  provides  certain  courses  of  this  kind.  The  Navy  Yard 
and  the  Bureau  of  Engraving  and  Printing  are  offering  at  the  present  time 
rather  elaborate  apprentice  courses. 

There  are  also  courses  being  offered  outside  of  working  hours  that  give 
one  training  for  promotion.  The  Bureau  of  Internal  Revenue  has  such  courses 
in  its  "curriculum."  The  Bureau  of  Standards,  too,  has  given  for  the  past 
ten  years  a  series  of  courses  that  are  on  a  par  with  those  offered  in  our  large 
universities.  Besides  fitting  men  for  more  specialized  work  in  the  Bureau, 
they  serve  as  a  stimulus  to  development  for  a  considerable  number  of  employees. 

Training  courses  are  founded  on  the  conviction  that  well-informed  and 
growing  employees  are  a  bigger  asset  to  the  employer  than  those  who  know  one 
or  two  operations  without  respect  to  the  whole,  and  are  content  with  the  posi- 
tion they  now  occupy.  Some  of  the  divisions  of  the  Government  have  clearly 
shown  the  possibilities  of  adopting  modern  training  methods  in  the  work  of 
the  Government  itself. 

Conclusion. 

In  the  foregoing  discussion  of  wage  and  employment  matters,  we  "have 
seen  that,  except  with  regard  to  the  initial  selection  now  carried  on  by  the 
Civil  Service  Commission,  the  Government  as  an  employer  has  given  each  of 
its  responsible  heads,  comparatively  speaking,  a  free  hand  to  pursue  the  poli- 
cies he  sees  fit.  Such  discrimination  has  led  on  the  one  hand  to  widely  differing 
practices.  It  has  made  it  possible  for  the  majority  of  the  administrative  offi- 
cers to  ignore  certain  important  advances  that  have  been  made  in  employment 
practices  during  the  recent  years.  It  has  also  necessarily  caused  a  feeling  of 
discontent  and  a  sense  of  unjust  treatment  in  the  working  force. 

THE  TURNOVER  IN  FEDERAL  EMPLOYMENT 

There  are  two  tests  that  determine  the  success  of  an  employer  in  dealing 
with  his  working  force.  The  one  is  amount  of  production,  the  other  the  loyalty 
of  the  workers  to  the  employer.  No  standard  has  as  yet  been  generally  adopted 
to  measure  even  in  an  approximate  way  the  productive  efficiency  of  the  Gov- 
ernment organizations,  although  individual  administrators  have  demonstrated 
the  feasibility  of  developing  effective  tests  that  are  applicable  to  a  large  number 
of  the  processes  now  in  use.  But  from  the  point  of  view  of  loyalty  of  the 
working  force,  there  is  one  important  test  that  clearly  indicates  /that  the 
Government  is  far  from  pursuing  a  satisfactory  wage  and  employment  per- 
sonnel policy.  This  appears  in  what  is  now  commonly  called  the  turn-over 
records,  i.e.,  the  reports  of  the  separations,  from  the  service. 

A  resume  of  the  percentage  of  separations  will  show  how  serious  the  situ- 
ation has  come  to  be.    According  to  the  reports  of  the  Civil  Service  Commis- 


sion,  the  total  separations,  including  temporary  employees,  range  from  5^% 
in  1904  to  11%  in  1916,  when  there  is  a  steady  advance  to  a  maximum  of  40% 
in  1919;  the  figure  then  recedes  to  33%  for  the  first  half  of  the  fiscal  year 
1919-20.  It  may  reasonably  be  assumed  that  this  last  figure,  which  is  derived 
from  a  normal  post-war  period  and  entirely  excludes  temporary  employees,  is 
a  fair  barometer  to  the  state  of  mind  in  which  the  whole  group  of  Federal 
employees  now  find  themselves. 

The  most  alarming  aspect  of  the  turnover  data  in  these  recent  years  is 
that  the  separations  among  the  scientific-technical  employees  is  constantly  in- 
creasing. A  study  of  six  bureaus,  employing  almost  equal  numbers  of  clerks 
and  scientific-technical  workers,  indicates  that  the  turnover  among  the  former 
was  29%  in  1919  and  among  the  latter  69%,  although  both  had  a  turnover 
of  only  12%  in  1916.  The  gravity  of  the  situation  becomes  apparent  when 
one  considers  that  the  scientific-technical  employees  taken  as  a  group  really 
constitute  the  directing  forces  of  the  Government. 

These  conditions  have  been  freely  commented  upon  by  administrative  offi- 
cials in  the  annual  reports  of  their  departments,  and  just  recently  in  public 
statements  and  addresses  of  the  heads  of  certain  departments,  as  well  as  their 
assistants.  From  such  sources  we  learn  that  the  disintegration  of  certain 
branches  of  the  State  Department  and  the  whole  personnel  of  the  Army  and 
Navy  is  impending.  The  retiring  Secretary  of  the  Interior,  commented  in 
sweeping  terms  on  the  critical  situation  now  confronting  the  Government. 

The  public,  as  represented  by  outside  organizations,  is  also  having  occa- 
sion to  experience  the  results  of  reduced  standards  of  service  that  are  to  be 
charged  to  the  Government's  scale  of  wages  and  its  employment  policy.  Just 
recently  a  dozen  representatives  of  various,  manufacturers'  associations  ap- 
peared before  a  House  Committee  to  argue  the  compelling  necessity  of  in- 
creasing salaries  for  the  Patent  Examiners.  A  representative  from  the  Patent 
Law  Association  expressed  the  common  viewpoint  most  pointedly  in  the  fol- 
lowing words; 

"The  result  is  that  the  Patent  Office  is  becoming  a  sort  of  cream  sepa- 
rator, the  cream  is  all  taken  off,  with  the  exception  of  the  men  who  stay 
there  on  account  of  financial  or  other  reasons,  the  skimmed  milk  stays 
behind." 

A  representative  of  the  National  Automobile  Chamber  of  Commerce  went 
so  far  as  to  state  that  the  situation  was  desperate.  He  claimed  that  "the 
Patent  Office  has  almost  ceased  functioning." 

A  committee  of  the  Merchants'  Association  of  New  York  City  denounced 
the  policy  of  the  Government  with  respect  to  the  compensation  paid  Customs 
officials  in  unmistakable  terms.  The  Committee  expressed  its  amazement  "that 
with  some  few  exceptions  compensation  now  paid  to  Government  officials  is 
based  upon  a  standard  of  wages  established  30  or  more  years  ago."  The 
Committee  complained  of  lowered  efficiency  as  being  due  to  the  voluntary 
separation  of  the  older  employees,  to  the  large  number  of  unfilled  vacancies, 
and  to  the  slowness  with  which  the  inexperienced  new  appointees  function. 

Gradually  other  sections  of  the  public  will  come  to  appreciate  that  their 
Government  is  operating  in  such  a  way  as  to  cause  delay  and  inconvenience 
in  ever-widening  circles. 

84 


The  administrative  officials,  if  questioned,  would  be  almost  unanimous  in 
voicing  the  fear  that  a  real  crisis  is  confronting  the  Government  today.  No 
less  a  term  than  disintegration  is  applied  by  some  to  the  state  of  affairs 
that  is  rapidly  developing  in  the  Federal  Civil  Service. 

The  problem  of  rebuilding  an  efficient  and  well-trained  personnel  is  becom- 
ing a  task  of  more  and  more  serious  proportions,  as  the  months  move  on. 
The  statement  attributed  to  a  President  of  the  United  States  a  few  genera- 
tions ago  to  the  effect  that  "the  duties  of  all  public  officials  are  at  last  being 
made  so  plain  and  simple  that  men  of  intelligence  may  readily  qualify  for 
their  performance,"  no  longer  holds  true.  Technical  training  of  the  most 
highly  specialized  type  is  required  for  the  conduct  of  the  almost  endlessly  varied 
responsibilities  of  a  modern  Government.  There  are  today  in  the  Civil  Service 
in  Washington  highly  specialized  technologists  who  cannot  be  replaced  from 
any  other  institution  in  the  country.  The  accumulated  experience  of  years  is 
being  quietly  but  surely  dissipated  by  the  present  policy  of  unsatisfactory 
salaries  and  employment  conditions. 

REMEDIES 

Classification. 

Th^  law  which  called  the  Reclassification  Commission  into  being  pre- 
scribed as  the  chief  task  that  it  should  provide  "uniform  and  equitable  pay 
-for  the  same  character  of  employment."  In  order  to  do  this  it  was  necessary 
to  classify  the  employees  with  respect  to  their  educational  and  experience 
qualifications,  and  also  to  the  duties  involved  in  the  positions  occupied.  The 
classification  that  has  been  worked  out  by  the  Reclassification  Commission 
offers  standards  whereby  the  Junior  File  Clerk,  the  Assistant  Hydraulic  Engi- 
neer, the  Senior  Economist,  etc.,  will  be  recognized  as  such  in  whatever  es- 
tablishment of  the  Government  they  may  be  found.  It  is  evident  that  standard 
definitions  of  classes  is  a  prerequisite  for  standardization  of  salaries. 

Compensation. 

"Equitable  pay"  implies  not  alone  that  the  Government  should  pay  a 
uniform  wage  to  all  employees  engaged  in  the  same  class  of  work,  but  also 
that  it  should  pay  a  wage  that  is  fair  and  reasonable  in  view  of  all  other  con- 
ditions. The  Government  c&n  do  no  less  than  pay  a  fair  wage  for  a  fair 
day's  work.  Although  there  is  no  general  agreement .  as  to  what  constitutes 
a  fair  wage,  it  is  clear  that  certain  factors  must  be  given  due  weight  in  deter- 
mining it.  Such  factors  are,  for  instance,  the  cost  of  living,  the  wages  paid  in 
first-class  establishments  for  similar  work,  the  character  of  the  work  as  to  the 
education  and  experience  required,  the  difficulty,  the  unpleasantness,  possible 
danger  involved,  etc. 

The  Reclassification  Commission  considered  these  factors  preliminary  to 
the  determination  of  the  salaries  which  are  recommended  in  the  report  sub- 
mitted to  Congress.  It  also  took  into  account  the  desirability  of  not  imposing 
too  heavy  a  burden  on  the  taxpayers  of  the  country  by  recommending  sal- 
aries that  would  involve  an  aggregate  increase  of  many  millions  of  dollars. 

The  salary  scale  finally  recommended  has  in  the  main  met  with  the  appro- 
val of  both  employees  and  administrators.  The  public  too  has  reason  to  give 
its  support  to  the  suggested  salaries,  as  it  was  estimated  by  the  Commission 
that  the  new  scale  would  entail  an  increase  of  only   8%    to   10%    over  the 

85 


present  aggregate,  which  includes  the  bonus  of  $240  now  being  paid  to  most 
employees.  In  view  of  the  90%  increase  in  the  cost  of  living  since  1914,  such 
an  average  increase  must  be  considered  highly  conservative. 

Congress  has  peculiar  reason  to  welcome  the  report  of  the  Commission  be- 
cause a  standard  classification  with  a  reasonable  range  of  salaries  set  for  the 
various  classes  will  make  it  possible  for  Congress  to  do  away  with  rigid  statu- 
tory appropriations  for  personal  services,  and  enable  it  to  exercise  a  proper 
measure  of  control  over  compensation  rates  by  fixing  the  minimum  and  maxi- 
mum limits.  Flexibility  within  the  range  will  surely  be  in  the  interest  of  good 
administration,  particularly  if  a  sound  system  of  rating  efficiency  is  established, 
whereby  all  increases  above  the  minimum  may  be  determined. 

On  account  of  the  fact  that  the  Government  service  is  constantly  under- 
going changes  on  the  one  hand,  and  that  salary  scales  are  not  and  will  not 
be  stationary  on  the  other,  the  Commission  recommends  that  a  central  per- 
sonnel agency,  preferably  the  Civil  Service  Commission,  be  empowered  to 
keep  current  the  classification  and  the  salary  scale.  It  particularly  urges  the 
importance  of  making  a  continuous  study  of  the  competitive  market  and  the 
fluctuations  in  the  cost  of  living  so  that  recommendations  of  changes  in  the 
salary  scale  may  be  made  to  Congress  as  occasion  demands.  Justice  to  the 
taxpayers  who  are  interested  in  an  efficient  and  constant  personnel,  as  well  as 
to  the  employees,  requires  that  changing  conditions  shall  be  considered  as 
changing  and  not  as  fixed.  The  Government  cannot  wisely  do  less  than 
many  progressive  industrial  concerns  which  are  beginning  to  recognize  the 
need  of  a  positive  wage  policy  that  will  anticipate  and  thus  avoid  the  possi- 
bility of  dissatisfaction  as  to  the  vital  matter  of  wages.  Such  a  policy  specifi- 
cally provides  a  method  of  revising  the  wage  scale. 

Employment  Policy^ 

No  additional  reasons  for  centralizing  personnel  matters  in  one  agency 
appear  necessary  when  one  examines  the  variety  of  practices  pursued  in  the 
different  departments  in  the  matter  of  employment  policies.  If  a  state  of  uni- 
formity and  equity  is  to  be  preserved,  it  will  be  necessary  to  give  a  central 
agency  the  power  of  review  over  all  matters  affecting  the  status  and  the  sal- 
aries of  employees.  This  would  involve  such  matters  as  selection,  probation, 
efficiency  ratings  as  the  basis  of  salary  increases  and  as  an  important  ele- 
ment in  promotions,  dismissal  and  retirement. 

Civil  Service  Commission. 

Accordingly,  the  Reclassification  Commission  provides  in  its  Bill  that  the 
Civil  Service  Commission  as  the  central  agency  shall  exercise  supervision 
over  these  various  phases  of  employment  policy.  The  Reclassification  Com- 
mission believes  that  the  provisions  of  the  Bill  may  be  so  administered  as 
not  to  conflict  with  the  freedom  necessary  for  the  proper  exercise  of  executive 
responsibility  in  administrative  matters.  For  this  reason  it  has  specifically 
prescribed  in  a  number  of  passages  of  the  Bill  that  the  administrative  offi- 
cials shall  be  consulted  and  their  cooperation  and  advice  shall  be  sought  in 
advance  by  the  Civil  Service  Commission.  Accordingly,  if  the  Bill  is  enacted 
into  law  it  will  be  the  duty  of  the  Civil  Service  Commission  to  become  the  im- 
partial agency  with  regard  to  employment  and  wage  policies,  guaranteeing,  on 
the  one  hand,  just  treatment  to  the  employees  and  consistent  cooperation  with 


the  executive  officials  on  the  other.    Both  interests  must  be  conserved  in  the 
name  of  efficient  administration. 

Advisory  Council. 

On  account  of  the  two-fold  relationship  of  the  central  personnel  agency,  the 
Reclassification  Commission  provides  further  for  the  establishment  of  an  Ad- 
visory Council  to  the  Civil  Service  Commission.  Its  members  shall  consist  in 
equal  parts  of  those  elected  by  the  employees  and  of  those  representing  the 
administrative  officials,  the  latter  to  be  appointed  directly  by  the  President. 
This  body  shall  be  called  into  consultation  in  connection  with  any  rules  and 
regulations  and  policies  that  may  be  promulgated  by  the  Civil  Service  Com- 
mission. Although  it  shall  have  only  advisory  power,  it  will  be  so  representa- 
tive in  its  character  and  will  bring  to  bear  such  expert  judgment  and  actual 
experience  with  personnel  matters  that  the  Civil  Service  Commission  will  be 
likely  to  attach  considerable  weight  to  its  recommendations.  The  establish- 
ment of  the  Advisory  Council  seems  to  be  entirely  in  line  with  the  generally 
accepted  policy  of  modern  industrial  concerns,  to  give  a  greater  or  less  degree 
of  recognition  in  problems  of  management  to  those  who  are  immediately  con- 
cerned with  the  operations  of  the  given  establishment. 

This  latter  consideration  led  to  the  further  provision  that  the  Advisory 
Council  might  call  into  being  in  each  of  the  departments  and  establishments, 
and  in  such  sub-divisions  as  it  saw  fit,  personnel  committees  representing  the 
points  of  view  of  the  management  and  of  the  workers  themselves.  The  func- 
tions of  these  personnel  committees  are  not  in  any  way  prescribed  in  the  Bill, 
but  it  is  suggested  in  the  accompanying  report  that  they  might  very  well  assist 
in  an  advisory  capacity  in  settling  controversies,  in  assisting  in  classification 
and  wage  adjustments,  in  aiding  in  the  preparation  of  efficiency  ratings  and 
in  making  recommendations  as  to  matters  of  policy,  working  conditions,  etc. 
The  personnel  committees  might  well  correspond  to  the  shop  committees  that 
have  been  advocated  in  both  industrial  conferences  that  were  called  by  the 
President.  It  was  thought  that  the  representation  of  employees  in  this  man- 
ner would  bring  about  a  spirit  of  cooperation  and  would  ultimately  increase 
the  interest  and  enthusiasm  in  the  work  on  the  part  of  the  workers.  Such 
an  opportunity  for  expression  would  mark  a  step  in  the  direction  of  democratic 
partnership  which  seems  to  be  the  immediate  goal  of  industrial  relations  and 
which  a  modern  democratic  governmment  should  gladly  inaugurate  in  its 
own  functionings. 

Furthermore,  the  Commission  recommends  the  standardization  of  work- 
ing hours,  payment  for  overtime,  a  fixed  period  for  annual  leave  and  a  general 
policy  as  to  the  administration  of  sick  leave.  In  order  to  maintain  a  fair 
degree  of  uniformity,  general  supervision  over  these  and  related  matters  is 
also  placed  under  the  authority  of  the  Civil  Service  Commission. 

As  to  the  question  of  retirement,  the  Reclassification  Commission  urged 
that  Congress  adopt  an  actuarially  sound  retirement  measure.  It  did  not  go 
on  record  as  in  favor  of  any  of  the  Bills  which  were  under  consideration  by 
Congress. 

CONCLUSION 

The  remedies  described  above  are  based  practically  entirely  on  the  Report 
and  the  Bill  of  the  Reclassification  Commission,  with  the  exception  of  the 

37 


matter  of  retirement.  Such  a  course  may  be  justified,  in  view  of  the  fact 
that  the  Commission,  with  the  aid  of  a  large  staff  of  detailed  employees,  has 
just  completed  a  fairly  thorough-going  and  impartial  inquiry  into  wage  and 
employment  conditions  of  the  civilian  employees  in  the  service  in  Washington. 
Their  recommendations  are  conservative  in  character.  They  have  met  with  a 
considerable  degree  of  approval,  both  on  the  part  of  the  employees  and  the 
administrative  officials,  many  of  whom  consider  the  Bill  to  be  a  constructive 
measure  that  will  be  the  beginning  of  a  new  chapter  in  the  history  of  the 
Federal  Civil  Service.  There  is  surely  no  program  as  yet  put  forth  which 
meets  in  such  a  comprehensive  manner  a  situation  that  is  becoming  more  and 
more  grave  as  time  goes  on.  Both  justice  and  efficient  administration  demand 
that  a  well-balanced  employment  policy  shall  displace  the  "laissez  faire" 
policies  now  obtaining  in  the  conduct  of  the  Civil  Service. 

The  above  recommendations  will  entail  a  considerable  extension  of  the 
duties  and  responsibilities  of  the  Civil  Service  Commission.  If  the  Commis- 
sion is  to  function  effectively  adequate  salaries  should  be  provided  so  that  spe- 
cially fitted  men  and  women  may  be  attracted  to  accept  positions  on  the  Com- 
mission. This  should  apply  as  well  to  the  members  of  the  staff,  which  should 
consist  of  carefully  selected  experts. 


Conservation  and  Waterways 


Report  of  Sub-Committee 

GIFFORD  PINCHOT 

DANIEL  C.  JACKLING 

Joint  Chairmen 


CONSERVATION  AND  WATERWAYS 

Conservation  is  a  Republican  policy.  Its  purpose  is  the  use  and  preserva- 
tion of  the  natural  resources  for  the  greatest  good  of  the  greatest  number  for 
the  longest  time.  It  underlies  every  other  material  question.  President  Roose- 
velt said  of  it: 

"The  conservation  of  our  natural  resources  and  their  proper  use  constitute 
the  fundamental  problem  which  underlies  almost  every  other  problem  of  our 
National  life.  Unless  we  maintain  an  adequate  material  basis  for  our  civiliza- 
tion we  cannot  maintain  the  institutions  in  which  we  take  so  great  and  so  just 
a  pride;  and  to  waste  and  destroy  our  natural  resources  means  to  undermine 
this  material  basis." 

The  conservation  of  the  soil  may  be  said  to  have  begun  with  the  passage 
of  the  Homestead  Act  under  President  Lincoln.  The  effective  conservation  of 
the  forests  may  be  said  to  owe  its  beginning  to  the  passage  of  the  Act  of  March 
3,  1891,  which  authorized  the  establishment  of  National  Forests.  The  bill 
was  signed  and  the  first  National  forest  was  established  by  President  Harrison. 

The  conservation  of  our  waters  may  be  said  to  have  begun  with  the  passage 
of  the  Reclamation  Act  providing  for  the  irrigation  of  desert  lands  throughout 
the  west.  It  was  signed  by  President  Roosevelt  on  June  23,  1902.  Under  Pres- 
ident Roosevelt  great  progress  was  made  in  bringing  home  to  the  American 
people  the  importance  of  the  development  of  our  waterways  for  transportation, 
and  especially  that  of  the  Mississippi  River  and  its  tributaries  through  the  pro- 
posed Lakes-to-the-Gulf  Deep  Waterway.  Two  Republican  presidents,  Roose- 
velt and  Taft,  journeyed  by  steamer  down  the  navigable  length  of  the  Missis- 
sippi for  the  purpose  of  directing  public  attention  to  a  policy  which  one  of 
them  had  inaugurated  and  the  other  supported. 

The  beginning  of  the  conservation  of  our  natural  resources  as  the  great 
single  National  problem  it  has  become  dates  from  the  meeting  of  the  Gov- 
ernors of  the  States  held  in  the  White  House  in  May,  1908,  the  first  and  most 
remarkable  conference  of  its  kind,  at  which  almost  every  Governor  was  pres- 
ent, and  from  which  the  Nation  first  learned  what  conservation  means. 

To  this  meeting  was  submitted  the  policy  inaugurated  some  time  before 
by  President  Roosevelt,  of  retaining  in  public  hands,  for  private  development 
under  lease,  the  coal,  oil,  and  water  power  which  are  the  great  sources  of  me- 
chanical power.  The  result  appears  in  the  recent  passage  of  the  coal,  oil,  and 
phosphate  leasing  bill  by  a  Republican  Congress  and  the  report  from  confer- 
ence of  the  waterpower  bill,  a  similar  measure  fashioned  in  accordance  with 
the  same  principle,  and  about  to  be  passed  by  a  Republican  Congress. 

With  the  exception  of  about  20,000,000  acres,  the  155,000,000  acres  of  Na- 
tional forests  were  all  set  aside  by  Republican  presidents.  The  value  of  the 
action  whereby  these  forests  were  saved  to  the  people  of  the  United  States 
is  almost  beyond  measure. 

CONSERVATION  THE   BASIS  OF  NATIONAL  STRENGTH 

National  growth  and  strength,  and  conversely  national  weakness  and 
stagnation,  in  a  broad  sense,  are  due  to  the  physical  resources  (land  and  water) 
and  the  type  of  national  character.    Rich  natural  resources,  developed  and  con- 

41 


served  with  skill  and  vigor,  are  the  true  guarantees  of  national  efficiency.  Xhat 
is  why  the  condition  of  national  resources  and  the  means  by  which  they  are 
developed  are  matters  of  National  concern. 

Our  country,  endowed  by  nature  with  an  exceptional  wealth  of  natural  re- 
sources, owes  in  no  small  part  its  leadership  among  the  nations  to  this  fact  as 
well  as  to  its  social  and  political  conditions.  Its  growth  must  continue  to  de- 
pend upon  these  same  causes.  Our  natural  resources,  together  with  the 
methods  which  we  use  in  developing  them,  will  determine  our  material  future 
as  they  have  determined  our  material  past. 

In  the  past  our  resources  of  wood,  water,  land,  and  mine  were  superabun- 
dant. Little  thought  was  given  as  to  how  they  were  developed,  if  only  they 
were  put  to  use.  Invention,  enterprise,,  and  industry  were  devoted  to  exploita- 
tion, the  swiftest  that  could  be  contrived,  based  upon  the  theory,  then  unques- 
tioned, that  our  resources  were  and  always  would  be  inexhaustible.  But  in 
the  strictest  sense,  every  one  of  our  natural  resources  can  be  mined  or  ex- 
hausted by  unwise  use.  Already  the  inroads  which  have  been  made  upon  our 
forests,  upon  the  soil,  upon  our  minerals,  and  upon  the  sources  of  streams  are 
plain  and  undeniable.  Accompanied  as  they  are  by  the  waste  which  goes  with 
misuse,  neglect,  and  destruction,  they  have  imperiled  the  supplies  of  raw  material 
which  secure  the  stability  of  our  industrial  life.  In  consequence,  they  threat- 
en, if  continued  as  in  the  past,  to  undermine  the  civilization  which  is  based 
upon  natural  wealth.  We  can  no  longer  safely  shut  our  eyes  to  the  fact  that 
the  end  is  in  sight  for  timber,  oil  and  gas,  iron  ore,  and  many  other  natural 
resources,  and  that  conservative  economy  and  foresight  have  come  to  have 
a  national  significance  never  realized  before. 

CONSERVATION  MEANS  NATIONAL  DEVELOPMENT 

Conservation  does  not  contemplate  non-use.  On  the  contrary,  its  central 
and  controlling  idea  is  the  wise  use  of  natural  wealth.  Its  purpose  is  to  make 
our  exhaustible  resources,  like  oil,  and  coal,  last  as  long  as  the  avoidance  of 
waste  will  permit,  and  to  see  that  the  replaceable  resources,  like  the  soil  and  the 
forests,  may  be  conserved,  cultivated,  and  improved  so  as  to  meet  the  needs  of 
the  public  so  long  as  there  is  a  public  to  need  them. 

No  matter  how  great  an  industry  based  upon  the  use  of  our  natural  re- 
sources may  have  become,  in  the  end  it  must  decay  and  disappear  if  the  re- 
sources upon  which  it  depends  are  destroyed  in  the  process,  or  the  raw  ma- 
terial increased  in  cost  beyond  the  capacity  of  the  business  to  pay.  We 
cannot  continue  to  grow  as  a  nation,  industrially  or  otherwise,  as  we  have 
grown  in  the  past,  unless  we  make  sure  that  the  material  basis  of  our  growth, 
the  natural  resources,  are  wisely  conserved  and  used,  and  neither  wasted  nor 
needlessly  depleted.  One  of  the  great  achievements  of  the  Roosevelt  Adminis- 
tration was  the  awakening  of  the  Nation  to  the  fact  that  we  had  reached  a 
point  where  we  must  consider  the  stock  in  hand  of  our  natural  resources,  and  so 
deal  with  them  in  the  future  as  to  secure  them  against  reckless  waste  and 
destruction.    It  was  and  is  a  sharp  challenge  to  our  industrial  efficiency. 

CONSERVATION  OF  OUR  NON-METALLIC  MINERALS. 

Mineral  production  is  second  only  to  agriculture  as  a  contribution  to  our 
national  wealth.  Of  our  mineral  resources  none  are  more  important  for  in- 
dustrial progress  and  the  public  welfare  than  coal  and  oil.    We  have  been  in 

42 


the  habit  of  describing  them  as  inexhaustible.  Yet  it  is  officially  estimated 
that  our  oil  and  gas  may  not  last  in  this  country  in  abundance  for  more  than 
twenty-five  years,  and  our  best  coal  will  be  mined  in  less  than  one  hundred 
years.  While  a  hundred  years  seems  long,  from  the  standpoint  of  permanent 
National  prosperity  it  is  not  too. long  to  look  ahead.  Mining  methods,  for  ex- 
ample, are  improving,  yet  under  our  present  methods  it  is  estimated  that  for 
every  ton  of  coal  produced  one-half  a  ton  is  wasted,  while  the  coal  actually 
produced  as  ordinarily  used  does  not  yield  more  than  five  to  ten  per  cent  of 
its  potential  energy. 

There  is  much  to  be  done,  also,  in  the  conservation  of  the  life,  health, 
and  working  conditions  of  those  whose  toil  makes  possible  the  enjoyment  of 
these  mineral  resources.  The  appalling  loss  of  life  through  mine  accident  is 
still  a  problem  of  national  importance. 

Fifteen  years  ago,  a  Republican  President  first  advocated  as  a  national 
policy  the  adoption  of  a  leasing  policy  for  the  coal,  oil,  gas,  and  phosphate 
lands  remaining  in  public  ownership.  A  Republican  Congress  has  just  passed 
an  admirable  leasing  law  which  conserves  these  great  public  mineral  resources 
for  the  people,  provides  for  their  development  by  private  enterprise  under 
lease,  prevents  waste  and  destruction,  protects  the  workers,  and  provides 
for  royalties  which  will  undoubtedly  yield  to  the  people  of  the  United  States, 
as  against  the  old  law  which  it  replaces,  money  enough  from  coal  and  again 
enough  from  oil  to  pay  for  our  share  in  the  war. 

In  a  specific  case  the  difference  under  the  old  law  and  the  new  would 
amount  to  the  difference  between  a  purchase  price  of  $95,000  and  royalties 
due  to  the  public  of  more  than  $16,000,000. 

WATER    POWER 

The  conservation  of  water  power  is  a  Republican  policy  inaugurated  under 
a  Republican  President.  If  the  streams  are  protected,  water  and  water  power 
are  not,  like  mines,  exhaustible  resources.  There  are  over  sixty  million 
horsepower  to  be  developed  from  running  water  in  this  country.  Every  mil- 
lion horsepower  developed  will,  in  the  gross,  take  the  place  of  thirty  million 
tons  of  coal,  saving  not  only  the  coal  but  about  one  hundred  million  dollars  be- 
sides, per  year,  and  releasing  for  other  work  about  ten  thousand  miners, 
twenty-five  thousand  coal  cars,  eight  hundred  engines,  one  thousand  engineers, 
firemen,  and  train  conductors,  and  five  thousand  other  railroad  employees. 

Development  of  water  power  is  absolutely  essential.  Such  development 
will  promote  also  the  other  uses  of  water  for  transportation  and  domestic  and 
commercial  supply,  and  help  to  control  floods  and  prevent  low  water  in  our 
streams. 

A  water  power  bill  has  passed  both  Houses  of  Congress,  and  the  confer- 
ence report  has  passed  the  House.  It  is  in  close  conformity  with  the  Roose- 
velt conservation  policy.  It,  too,  as  with  coal  and  oil,  will,  in  all  probability,  be 
worth  to  the  American  people  as  much  as  their  share  of  the  cost  of  the  war. 
The  danger  here  was  from  unregulated  monopoly  and  the  possible  oppression 
of  the  general  public  by  the  owners  of  water  power  rights  acquired  from  the 
public.  Because  of  this  law,  our  posterity  will  be  secure  as  to  power  and  light, 
and  even  heat,  at  reasonable  prices,  both  before  and  after  the  coal,  oil,  and  gas 
have  grown  scarce  or  have  become  exhaustjgd. 


This  bill  provides  for  the  development  of  water  power  on  navigable 
streams  and  public  lands  by  private  initiative  under  license  from  the  gov- 
ernment; each  license  to  terminate  at  the  end  of  fifty  years  or  less ;  the  valu- 
able privileges  granted  to  be  paid  for;  development  to  be  prompt  and  opera- 
tion continuous;  and  reasonable  payment,  less  depreciation  and  amortization, 
to  be  made  for  the  plant  and  equipment  when  the  license  expires. 

WATER   TRANSPORTATION       ' 

Our  transportation  needs  have  grown  beyond  the  capacity  of  our  rail- 
roads alone  to  supply.  Because  of  this  fact,  and  out  of  the  emphasis  placed 
by  the  Roosevelt  Administration  on  a  comprehensive  waterway  program,  has 
grown  the  demand  for  a  national  policy  looking  toward  the  development  of  our 
waterways. 

We  have  a  finer  system  of  natural  waterways  than  any  other  con- 
tinent. Our  inland  waterways — rivers,  canals,  lakes  and  protected  coastwise 
channels — have  a  combined  length  of  about  sixty  thousand  miles.  Only  half 
of  this  mileage  is  used  at  all  for  navigation.  Waterways  are  neither  construct- 
ed nor  used  in  this  country  as  freely  as  they  are  in  Europe.  Most  of  the 
early  canals  were  abandoned  because  our  transportation  needs  in  the  first  half 
of  the  twentieth  century  did  not  reasonably  occupy  both  railroads  and  canals. 
Now,  however,  the  magnitude  of  our  inland  shipping  would  amply  support 
both.  It  was  found  in  France  and  Germany  that  water  transportation  im- 
provement, instead  of  destroying  or  injuring  parallel  railroads,  made  them 
more  prosperous.  The  waterways  carried  the  heavy  slow  freight,  and  the 
railroads'  were  devoted  to  an  increasing  carriage  of  higher  class,  better  pay- 
ing commodities. 

When  the  channel  of  the  River  Elbe  was  improved,  about  1890,  the  freight 
carried  by  water  increased  five  times  in  fifteen  years  and  the  business  of  com- 
peting railways  increased  eleven  times.  When  the  River  Main  was  improved, 
in  1886,  its  traffic  increased  over  100  per  cent  in  two  years,  and  that  of  paral- 
lel railroads  increased  94  per  cent. 

Beginning  with  1887,  France  made  a  large  development  of  her  rivers  and 
canals.  The  Northern  Railway  of  France,  in  direct  competition  with  43  per 
cent  of  all  these  inland  waterways,  was  the  only  French  railroad  that  did  not 
need  to  ask  Government  aid  during  the  next  twenty  years.  Until  the  war  each 
year  saw  new  growth  of  water  transportation  in  Europe. 

The  channel  of  the  Monongahela  River  for  131  miles  above  Pittsburgh  has 
been  improved  as  a  waterway,  and  carries  millions  of  tons  of  heavy  freight 
annually.  Nevertheless,  two  prosperous  railroads  follow  the  two  banks  of  this 
much-used  waterway,  and  the  resulting  industrial  development  along  the  river 
is  remarkable.  Experts  believe  that  it  would  pay  the  Nation  to  spend  the 
amount  necessary  to  improve  thoroughly  the  beds  of  our  principal  rivers,  con- 
nect them  up  by  means  of  high-capacity  canals,  and  complete  inland  water- 
ways capable  of  carrying  ocean-going  vessels  along  the  Atlantic  seaboard  from 
Maine  to  the  Gulf  of  Mexico,  and  from  Chicago,  Kansas  City  and  Pittsburgh 
to  the  Gulf. 

The  planned  and  orderly  development  of  our  waterways,  when  it  comes, 
will  owe  its  origin  to  the  appointment  of  the  Inland  Waterways  Commission  by  a 
Republican  President  in  1907,    Under  the  next  Republican  Administration;  it 

44 


was  followed  by  the  National  Waterways  Commission,  whose  findings  in  gen- 
eral were  the  same. 

One  of  the  more  important  findings  of  the  Inland  Waterways  Commission 
was: 

"We  recommend  that  hereafter  plans  for  the  improvement  of  naviga- 
tion in  inland  waterways,  or  for  any  use  of  these  waterways  in  connection 
with  interstate  "  commerce,  shall  take  account  of  the  purification  of  the 
waters,  the  development  of  power,  the  control  of  floods,  the  reclamation  of 
lands  by  irrigation  and  drainage,  and  all  other  uses  of  the  waters  or  bene- 
fits to  be  derived  from  their  control." 

A  Republican  Administration  achieved  the  Panama  Canal.  A  Republican 
Administration  undertook  the  reclamation  of  the  arid  lands  of  the  West. 

A  Republican  Administration,  that  of  President  Roosevelt,  first  made  the 
development  of  the  Mississippi  River  and  its  great  tributaries  a  vital  National 
question.  Two  Republican  Presidents,  Roosevelt  and  Taft,  traveled  down  the 
Mississippi  for  the  purpose  of  bringing  the  whole  problem  of  inland  waterway 
development  to  public  attention.    A  Republican  president  said : 

"One  of  the  greatest  of  our  Conservation  problems  is  the  wise  and 
prompt  development  and  use  of  the  waterways  of  the  Nation." 
Thfe  development  of  inland  transportation  by  water,  under  a  broad  and  com- 
prehensive plan  which  shall  include  all  the  uses  of  the  waters  and  benefits  to  be 
derived  from  their  control  is  a  policy  essentially  Republican. 

FOREST    PRODUCTS 

Our  most  pressing  conservation  question  relates  to  our  forests.  Out  of 
850  million  acres  of  virgin  timber  we  have  but  135  million  left.  We  have  ef- 
fectually exhausted  the  timber  lands  of  the  Northeast  and  of  the  once  mag- 
nificent forest  States  of  Pennsylvania,  Wisconsin,  Michigan  and  Minnesota. 
About  ten  years  will  see  the  Southeast,  which  has  been  our  greatest  producer 
of  saw  timber  for  years,  out  of  the  running  as  a  serious  competitor  in  the 
lumber  markets.  Already  much  of  the  timber  for  the  thickly  populated  East 
and  Middle  West  comes  from  beyond  the  Rocky  Mountains. 

Ninety-seven  per  cent  of  our  lumber  is  cut  from  privately  owned  land. 
We  cut,  burn,  and  waste  annually  120  billion  feet  of  wood.  We  grow  now  only  30 
billion  feet.  We  are  using  up  our  forest  resources  as  a  whole  four  times  faster 
than  they  are  being  renewed.  Our  annual  consumption  of  soft  woods,  like  pine, 
is  seven  times  the  annual  growth. 

At  this  rate  we  shall  exhaust  the  forests  of  the  Pacific  Slope,  our  one  con- 
siderable remaining  supply,  soon,  and  with  certainty.  Most  of  the  Southern  pine 
will  be  gone  in  ten  years.  It  may  be  the  Pacific  Slope  will  last  40  years ;  it  may 
be  75  years.  When  the  pinch  comes,  neither  wood  substitutes  nor  foreign  sup- 
plies can  relieve  the  scarcity  at  home.  Only  wise  and  vigorous  conservation 
measures  can  prevent  a  grave  timber  famine — the  beginnings  of  which  are 
already  felt. 

The  practice  of  conservation  in  lumbering,  coupled  with  the  prevention 
of  forest  fires,  will  mitigate  the  coming  shortage  materially  and  hasten  its 
cure.  The  growing  of  timber  on  all  land  in  the  United  States  chiefly  valu- 
able for  that  purpose  would  in  time  bring  the  annual  growth-  up  to  the  present 
annual  consumption. 

45 


The  Republican  party  has  taken  a  specially  honorable  part  in  saving  our 
National  forests,  and  in  the  effort  to  establish  a  National  forest  policy. 
The  danger  now  lies  in  the  unchecked  destruction  of  privately  owned  com- 
mercial timber  land.  Since  our  own  forests  are  disappearing,  and  since  there 
is  no  other  part  of  the  world  to  which  we  can  turn  for  the  wood  to  supply 
our  needs,  the  fact  remains  that  we  must  grow  our  own  supplies  of  wood  or 
go  without.  And  timber  is  the  one  crop  whose. failure  takes  generations  to  re- 
pair. We  shall  suffer  from  timber  shortage  in  any  event,  but  far  less  if  we  be- 
gin at  once  to  get  ready. 

The  problem  is  nation-wide.  So  long  as  they  last,  all  our  remaining  forests 
are,  and  must  continue  to  be,  used  as  a  common,  though  dwindling,  reservoir, 
upon  which  all  parts  of  the  country  must  draw.  Only  National  action  can  turn 
the  growing  deficit  into  a  surplus,  and  check  the  timber  famine  whose  first 
effects  are  already  here. 


46 


Banking  and  Currency 


Report  of  Sub-Committee 


FRANK  A.  VANDERLIP 

Chairynan 


BANKING  AND  CURRENCY 

Our  banking  and  currency  experience  since  1914  has  centered  in  the  Fed- 
eral Reserve  System — The  Federal  Reserve  Banks,  under  the  control  of  the 
Federal  Reserve  Board,  have  been  dominated  by  the  ex-officio  members  of 
that  Board,  the  Secretary  of  the  Treasury  and  the  Comptroller  of  the 
Currency  —  Responsibility  of  the  Wilson  Administration  —  Lowering  of 
legal  reserve  requirements  paved  the  way  for  deposit  and  bank-note  expansion 
— Extent  of  such  expansion — Oportunities  for  inflation  exploited  by  the  Ad- 
ministration's war  loan  policy — Artificially  low  discount  rate  encouraged  bond- 
buyers  to  rely  upon  bank  borrowing  rather  than  upon  savings — Accumulation 
of  "war  paper"  in  banks  prevented  normal  liquidation  of  credits — These  prac- 
tices, which  are  particularly  subject  to  criticism  since  the  Armistice  (a)  have 
greatly  increased  the  cost  of  the  war  by  inflating  general  prices;  (b)  have  caused 
gross  injustice  to  purchasers  of  Libertty  Bonds  and  Victory  Notes  through  the 
subsequent  decline  in  market  price;  (c)  have  encouraged  over-speculation  in 
securities  and  commodities. 

THE  FEDERAL  RESERVE  SYSTEM 

The  currency  and  banking  experience  of  the  country  since  1914  has  cen- 
tered in  the  Federal  Reserve  System,  which  was  authorized  by  the  act  of  De- 
cember 23,  1913,  and  went  into  active  operation  on  November  16th  of  the 
following  year.  This  system  covers  about  70  per  cent  of  the  banking  capital 
(paid  up  capital,  surplus,  and  undivided  profits)  of  the  country's  commercial 
banks  (national  banks,  state  banks,  and  trust  companies),  approximately  72 
per  cent  of  the  individual  deposits  of  these  commercial  banks,  and  about  74 
per  cent  of  their  total  loans  and  discounts.  Through  the  twelve  Federal  Re- 
serve Banks  themselves  and  the  national  banks,  all  of  which  belong  to  the 
Federal  Reserve  System,  were  issued  $3,856  millions  of  the  country's  total 
monetary  circulation  of  $5,999  millions  as  of  March  1,  1920.  This  represents 
64  per  cent  of  our  total  circulation.  Federal  Reserve  Notes  and  Federal  Re- 
serve Bank  Notes  constituted  53  per  cent  of  the  total.  Every  dollar  of  the 
legal  reserve  of  our  nearly  eight  thousand  national  banks  and  most  of  the 
legal  reserve  of  eleven  hundred  odd  member  state  banks  and  trust  companies 
consist  of  deposits  in  Federal  Reserve  Banks.  The  Federal  Reserve  System 
in  its  membership  and  in  its  field  of  operation  is  being  continually  extended. 
For  good  or  for  evil  therefore  its  potentialities  are  tremendous. 

Federal  Reserve  Board. 

The  system  is  controlled  by  the  Federal  Reserve  Board,  consisting  of 
seven  members,  five  of  whom  are  appointive  and  two  of  whom,  the  Secretary 
of  the  Treasury  and  the  Comptroller  of  the  Currency,  are  ex-officio.  All  seven 
of  these  members  have  been  appointed  by  President  Wilson.  The  powers 
of  the  Board  are  large.     Among  others  they  include : 

1. — The  power  to  appoint  three  of  the  nine  members  of  the  Board  of 
Directors,  including  the  Chairman,  of  each  of  the  twelve  Federal 
Reserve  Banks ; 

2. — Subject   to    the   imposition   of   certain   taxes   on    deficiency   reserve, 

49 


the  power  "to  suspenid  for  a  period  not  exceeding  thirty  days,  and 
from  time  to  time  to  renew  such  suspension  for  periods  not  exceed- 
ing fifteen  days,  any  reserve  requirement  specified"  in  the  Act ; 

3. — The  power  "to  supervise  and  regulate  .  .  .  the  issue  and  retire- 
ment of  Federal  Reserve  Notes"; 

4. — The  power  "to  suspend  or  remove  any  officer  or  director  of  any  Fed- 
eral Reserve  Bank"; 

5. — The  power  to  "require  Federal  Reserve  Banks  to  rediscount  the  dis- 
counted paper  of  other  Federal  Reserve  Banks  at  rates  of  interest  to 
be  fixed  by  the  Federal  Reserve  Board" — a  power  that  may  be  exer- 
cised against  the  will  of  the  Federal  Reserve  Banks   concerned; 

6. — ^The  power  of  determining,  within  certain  limitations,  what  exchange 
charges  on  domestic  operations  shall  be  permissable  to  member  banks ; 

7. — The  power  to  control  the  rates  of  discount  that  may  be  charged  by 
Federal  Reserve  Banks  for  each  class  of  paper ; 

S. — The  broad  power  to  "exercise  general  supervision  over"  the  Federal 
Reserve  Banks. 

Extensive  Powers 

With  powers  such  as  these  it  Is  easy  to  see  that  the  Federal  Reserve 
Board  could,  if  it  cared  to,  easily  dominate  the  commercial  banks  of  the  coun- 
try and  the  market  for  short-time  credit,  and  could,  to  a  large  extent,  deter- 
mine the  country's  supply  of  bank-note  and  deposit  currency  and  thereby 
influence  the  general  price  level. 

As  a  matter  of  fact,  the  Board  has  not  been  slow  to  utilize  the  great 
powers  conferred  upon  it  by  the  law.  To  an  increasing  degree  the  Board  has 
dominated  the  policies  of  the  directorates  of  the  twelve  Federal  Reserve 
Banks. 

Dominated  by  Ex-oflBcio  Members. 

The  Board  itself  in  important,  matters  of  policy,  has  in  turn  been  domi- 
nated to  a  very  large  extent  by  its  two  ex-officio  members,  the  Secretary  of 
the  Treasury  and  the  Comptroller  of  the  Currency.  The  high  official  position 
of  the  Secretary  of  the  Treasury  and  the  fact  that  he  is  ex-officio  Chairman  of 
the  Board,  would  of  themselves  naturally  give  him  a  large  influence  in  the 
formulation  of  the  Board's  policies.  Section  1  of  the  Federal  Reserve  Act 
moreover,  specifically  provides  that  "wherever  any  power  vested  by  this  Act 
in  the  Federal  Reserve  Board  or  the  Federal  Reserve  Agent  appears  to  conflict 
with  the  powers  of  the  Secretary  of  the  Treasury,  such  powers  shall  be  exer- 
cised subject  to  the  supervision  and  control  of  the  Secretary." 

RESPONSIBILITY  OF  THE  WILSON  ADMINISTRATION: 

The  one  outstanding  fact,  in  comparison  with  which  all  others  are  sec- 
ondary, is  that  the  war,  to  a  great  extent,  was  financed  by  a  policy  of  inflation — 
a  policy  which  has  contributed  largely  to  the  great  increase  in  the  cost  of  living 
since  1914,  with  its  attendant  hardships,  injustice  and  social  discontent.  In 
so  far  as  the  war  period  is  concerned,  we  merely  call  attention  to  the  fact  without 
expressing  an  opinion  as  to  the  wisdom  or  lack  of  judgment.  But  the  contin- 
uance of  this  policy  since  the  Armistice  lays  the  Administration  open  to  severe 
criticism. 

50 


The  establishment  under  the  Federal  Reserve  Act  of  twelve  Federal 
Reserve  banks  of  rediscount  and  issue  made  safely  possible  and  desirable 
substantial  reductions  in  the  country's  legal  reserve  requirements,  but  the 
reductions  made  by  the  Act  itself  and  by  the  subsequent  amendments,  includ- 
ing the  discontinuance  of  all  cash-in-vault  reserve  requirements  of  national 
banks,  were  an  important  factor  in  the  inflation  which  the  country  has  since 
experienced. 

Reduction  of  Reserve  Requirements. 

Leaving  out  of  account  minor  changes  of  administra;tive  character  as 
regards  the  manner  of  computing  net  deposits  against  which  legal  reserves 
are  held,  and  considering  the  case  of  a  national  bank,  it  appears  that  from  1913 
to  1920,  the  ultimate  legal  cash  reserve  required  to  be  held  against  the  liabilities 
of  a  central  reserve  city  bank  was  reduced  from  25  per  cent,  of  deposits  to  4.18 
per  cent.;  that  of  a  reserve  city  bank  from  15.6  per  cent,  to  3.34  per  cent.,  and 
that  of  a  country  bank  from  7.4  per  cent,  to  2.50  per  cent. 

This  great  reduction  in  legal  reserve  requirements,  with  its  release  of 
many  hundreds  of  millions  of  dollars,  created  vast  potentialities  for  deposit 
currency  and  bank  note  expansion — potentialities  which  rapidly  became  actu- 
alities under  the  policies  adopted  by  the  Federal  Reserve  Board. 

There  soon  followed  a  rapid  decline  in  the  average  percentage  of  ultimate 
cash  reserve  held  against  individual  deposits  in  the  commercial  banks  of  the 
country;  that  average  percentage,  having  been  reduced  by  over  40  per  cent, 
between  1913  and  1919.  Since  1915,  ultimate  cash  reserves  have  moved  almost 
continually  towards  the  new  legal  reserve  minima. 

Federal  Reserve  Notes. 

A  somewhat  similar  development  took  place  with  regard  to  our  paper 
currency  as  a  whole.  Here  average  metallic  reserve  requirements  were  greatly 
reduced,  and  Federal  Reserve  Notes  were  issued  in  large  volume.  Between 
March  1,  1913,  and  March  1,  1920,  the  character  of  the  paper  money  circu- 
lation of  the  country  was  changed  as  shown  in  the  following  table: 

Paper  Money  Circulation   and  Metallic  Reserves,  March  1,  1913,  and  March  1,  1920. 

— ^Amount  in  Circulation —  — Metallic  Reserve — 

—March  1, 1913—  —March  1, 1920—  —March  1,  1913—          -^March  1, 1929— 

Per  Per 

cent,  of  cent,  of 

totali  total 

Amount          Circu-  Amount          Circu-  Amount  Percentage                      Percentage 


Kind  of  Paper  Money.        millions.          lation.  millions.  lation.  millions,     reserve.  Amount 

Gold  Certificates $994.1          29.7  387.2  6.5  994.1         100  387.2  100 

Silver  Certificates 460.9          13.8  128.6  2.1  460.9*       100  128.6  100 

United  States  Notes 339.0          10.1  328.6  5.5  150.0           46^  153.0 

Treasury  Notes  of  1890 2.7            0.1  1.7           s  2.7*       100  1.7  100 

National  Bank  Notes,  net...  711.4         21.3  657.3  11.0          3       15.26  2.3 

Fed.  Res.  Bank  Notes 198.8  3.3 3.66  1.5 

Federal  Reserve  Notes 2,999.7  50.0          1,202.9  40.1^ 


Total  $2,508.1  75.7         4J^01.9         78.4      1,607.7         64.1         1,891.6      .      40.2 

IThe  total  circulation  of  all  kinds  of  money  ou  March  1,  1913,  was  $3,344  millions.  Treasury  De- 
partment  Circulation   Statement,   April   1,   1913. 

2The  total  circulation  of  all  kinds  of  money  on  March  1,  1920,  was  $5,999  millions.  Treasury 
Department,    Circulation    Statement,    March    1,    1920. 

SNegligible,   being  less  than   .03   per  cent. 

4Silver. 

5The  national  Bank  note  redemption  fund  of  $25,774,348  is  not  included  because  in  1913  it  was 
countable  as  legal  reserve  money  against  deposits,  and  it  has  therefore  been  counted  in  computing 
the  reserves  against  deposits. 

6These  are  the  figures  for  the  five  per  cent,  redemption  fund,  as  shown  by  the  Daily  Statement 
of  (he  U.  S.  Treasury  for  February  28,  1920.  These  funds  must  be  in  "lawful  money,"  and  in  the 
absence  of  information  as  to  the  kind  of  money  In   which  held  I  have  assumed  it  to  be  metallic  money. 

7This  reserve  is  the  figure  for  the  ratio  of  gold  reserves  to  net  deposit  and  federal  reserve 
note    liabilities   combined,    February    27,    1920. 

51 


Briefly  summarized  the  table  shows  that  the  paper  money  circulation  of 
the  country  increased  from  $2,508  millions  on  March  1,  1913,  to  $4,702  millions 
on  March  1,  1920,  an  increase  of  87.5  per  cent. ;  while  the  metallic  reserve  held 
against  this  paper  money  circulation  increased  during  the  same  seven  year 
period  from  $1,608  millions  to  $1,892  millions,  an  increase  of  17.7  per  cent. 
On  the  former  date  the  metallic  reserve  averaged  approximately  64  cents  to 
the  dollar,  and  on  the  latter  approxim  ately  40  cents  to  the  dollar. 

Inflationary  Results. 

The  inflationary  results  of  these  great  reductions  in  legal  reserve  re- 
quirements against  bank  deposits  and  paper  money,  and  in  the  percentages 
of  actual  reserve  held,  were  increased  by  the  influx  of  gold  from  Europe  that 
the  war  brought  us,  and  by  the  gold  embargo  which  the  government  main- 
tained from  September  7,  1917,  to  June  10th,  1919.  Largely  as  a  result  of 
belligerent  Eur^ope's  heavy  demands  upon  us  for  war  supplies  during  the 
period  before  our  entering  the  war,  accompanied  by  a  heavy  decline  in  her 
merchandise  exports  to  the  United  States,  the  first  three  years  of  the  war 
witnessed  a  huge  net  importation  of  gold  into  the  United  States.  From  August 
1,  1914,  to  April  1,  1917  (practically  the  period  of  the  war  prior  to  our  entrance 
as  a  belligerent)  our  net  importations  of  gold  amounted  to  $1,109  millions  and 
our  stock  of  monetary  gold  increased  from  $1,887  millions  to  3,089  miflions. 
This  enormous  increase  in  our  supply  of  monetary  gold  we  maintained 
throughout  the  remainder  of  the  war  and  have  most  of  it  to  this  day,  although 
there  have  been  substantial  losses  during  recent  months.^ 

The  war  period  brought  us  the  greatest  influx  of  gold  that  any  country 
in  history  has  ever  had  in  the  same  period  of  time,  while  our  gold  embargo 
dammed  most  of  this  gold  up  in  the  country  for  a  period  of  approximately 
twenty-one  months.  During  this  time  when  our  monetary  gold  supply  was 
growing  so  rapidly,  the  effect  of  the  amendment  of  June  21,  1917,  to  the  Fed- 
eral Reserve  Act,  as  supplemented  by  administrative  policy,  in  reducing  re- 
serve percentages  and  in  forcing  the  country's  gold  and  gold  certificates  out 
of  active  circulation  and  out  of  the  vaults  of  individual  banks  and  into  the 
vaults  of  the  Federal  Reserve  Banks — was  to  make  each  doflar  of  gold  we  pos- 
sessed the  basis  for  an  expanding  structure  of  circulating  credit. 

The  forces  of  inflation  created  in  these  ways  were  strengthened  and 
speeded  up  in  their  operation  by  the  war  loan  policy.  The  salient  feature  of 
this  policy  consisted  in  floating  vast  quantities  of  government  bonds  at  rates 
of  interest  below  the  market  rate,  by  means  of  appeals  to  war  patriotism  in 
a  few  intense  drives,  during  which  the  public  were  encouraged  to  borrow 
funds  of  the  banks  and  buy  bonds  to  the  limit  of  their  borrowing  capacity. 

Artificial  Interest  Rates. 

Buyers  of  Liberty  Bonds  could  borrow  of  their  local  banks  the  money  neces- 
sary-for  purchasing  the  bonds  at  the  san#  rates  of  interest  that  were  paid  by 
the  bonds,  depositing  the  bonds  as  collateral  for  their  loans;  inasmuch  as 
small  margins,  in  some  cases  practically  none,  were  required  by  banks  on  these 
loans,  the  interest  received  on  the  bonds  practically  paid  the  interest  due  the 


1  From  April  1,  1917  to  November  1,  1918,  our  net  importations  of  gold  amounted  to  11.5 
millions  and  our  stock  of  monetary  gold  decreased  from  $3,089  millions  to  $3,080  millions.  For 
approximately  the  period  since  the  Armistice,  namely  from  November  1,  19i8,  to  February  1, 
1920,  we  have  had  a  net  exportation  of  gold  of  $328  millions.  Our  stock  of  monetary  gold 
decreased  from  $3,080  millions,  November  1,  1918,  to  $2,721  millions,  March  1,  1920. 

52 


banks  on  the  purchasers'  notes.  The  fact  tnat  the  funds  paid  to  the  banks 
for  the  government's  account  on  such  bond  sales  were  usually  left  as  a  gov- 
ernment deposit  at  the  banks  for  some  weeks  at  the  low  interest  rate  of  2 
per  cent,  without  the  requirement  of  any  reserve  against  the  deposit  usually 
made  the  operation  a  profitable  one  to  the  banks.  When  later  the  government 
called  upon  the  banks  for  funds,  the  Federal  Reserve  Bank  was  ready  to  lend 
to  the  banks  the  funds  necessary  for  meeting  the  government's  call,  and  to  do 
so  at  a  rate  of  interest  lower  than  that  being  paid  to  the  banks  by  their  bond 
buying  customers,  accepting  as  collateral  at  par  the  customers'  notes  with  the 
bonds  attached  as  collateral  or  redis counting  those  notes.  This  procedure 
lodged  the  bonds  with  the  Federal  Reserve  Bank,  releasing  against  them 
Federal  Reserve  Bank  deposits  or  Federal  Reserve  notes,  the  latter  being  obli- 
gations of  the  government — a  process  which  expanded  the  Federal  Reserve 
Bank's  Habilities,  both  deposit  and  note,  and  tended  to  force  continually  down- 
ward the  Federal  Reserve  Bank's  percentage  of  reserve. 

If  the  buyer  of  the  Liberty  Bond  did  not  forthwith  curtail  his  expendi- 
tures on  other  things  and  reduce  his  loan  at  the  bank — and  in  all  too  many 
cases  he  did  not — the  ultimate  result  of  this  series  of  operations  was  inflation 
and  practically  nothing  more.  The  borrower  went  on  consuming  goods  as 
before,  competing  with  the  government  for  the  country's  limited  supply  of 
labor  and  capital;  the  local  bank  went  on  lending  as  before  because  its  loan 
to  the  Liberty  Bond  buyer  had  not  appreciably  curtailed  its  loanable  funds; 
the  government  had  more  funds  than  before  but  there  were  no  more  goods 
thereby  created,  or  made  available  by  the  bond  buyer's  economies,  for  the 
government's  war  needs.  The  Federal  Reserve  Bank,  however,  had  expanded 
its  liabilities  and  reduced  its  ratio  of  reserve  to  deposits  and  outstanding  Fed- 
eral Reserve  notes.  Under  the  pressure  of  the  increased  purchasing  power  in 
the  forms  of  circulating  bank  deposits  and  Federal  Reserve  notes  thus  thrown 
on  the  market  to  be  used  in  competition  for  the  pre-existing  supply  of  goods, 
the  price  level  was  rapidly  forced  upward.^  According  to  the  index  numbers 
of  the  United  States  Bureau  of  Statistics,  the  price  level  was  56  per  cent, 
higher  in  February,  1920,  than  in  April,  1917,  when  we  entered  the  war.  The 
higher  the  price  level  rose  the  more  the  government  had  to  pay  for  the  sup- 
plies it  purchased,  and  the  more  bonds  it  had  to, float. 

When  the  government  undertook  to  float  its  billions  of  dollars  of  securities 
at  interest  rates  that  were  far  below  the  fair  market  rate  for  such  securities 
at  such  a  time,  it  undertook  a  task  that  could  not  be  accomplished  except  at 
the  price  of  inflation  with  all  its  attendant  evils,  and  at  the  price  of  subsequent 
loss  to  original  holders  of  bonds  when  later  the  prices  of  their  bonds  should  sink 
to  their  natural  market  level. 

Preferential  Discount  Rates. 

During  the  entire  period  of  our  participation  in  the  war  and  during  most 
of  the  time  that  has  elapsed  since  the  armistice  discount  rates  at  the  twelve 
Federal  Reserve  Banks  have  been  maintained  below  the  market  rates  for  like 
paper.    "The  market  has  been  in  the  Federal  Reserve  Bank."    For  most  of  the 


1  Careful  estimates  show  that  the  physical  volume  of  business, — tons,  bushels,  yards,  gal- 
lons, etc., — increased  only  about  10  percent  from  1913  to  1919,  while  the  money  in  circulation 
increased  about  71  percent,  and  individual  bank  deposits  in  commercial  banks  about  120  per- 
cent. The  corresponding  figures  for  the  period  1916  to  1919  are — physical  volume  of  busi- 
ness, 0.5  percent,  money  in  circulation  39  percent,  and  deposits  56  percent. 

53 


time  the  Federal  Reserve  Banks  have  offered  preferentially  low  rates  for 
loans  collateraled  by  war  paper,  with  the  result  that  both  the  member  banks  and 
the  Federal  Reserve  Banks  have  been  loaded  up  with  this  paper,  at  times  carry- 
ing upwards  of  seven  billion  dollars  of  it. 

However  the  necessities  of  war  may  have  made  such  a  policy  imperative ' 
during  the  period  of  actual  hostilities,  it  is  difficult  to  see  what  legitimate 
arguments  can  be  advanced  for  the  continuance  of  such  a  policy  and  the  long 
delay  in  raising  discount  rates  after  the  armistice.  The  chief  purpose  of  these 
low  and  preferential  rates  has  been  avowedly  the  fiscal  one  of  enabling  the 
government  to  float  its  bonds  and  its  certificates  of  indebtedness  in  large  quan- 
tities at  low  interest  rates.  It  has  been  an  attempt  artificially  to  depress  the 
interest  rate;  in  other  words,  to  nullify  the  forces  of  economic  law  that  were 
strongly  pushing  the  interest  rate  up  under  the  stress  of  an  unprecedented 
demand  for  capital. 

CONSEQUENCES  OF  INFLATIONARY  WAR  FINANCING. 

Aside  from  the  great  evils  directly  resulting  to  the  public  from  the  high 
cost  of  living,  there  are  a  number  of  other  important  consequences  that  have 
sprung  from  this  inflationary  plan  of  war  financing: 

Increased  Cost  of  War. 

(a)  It  has  greatly  increased  the  cost  of  the  war.  In  pushing  up  the  price 
level  it  raised  enormously  the  prices  of  most  of  the  supplies  that  the  govern- 
ment purchased  for  the  conduct  of  th6  war,  and  raised  the  wages  of  the  labor 
the  government  directly  or  indirectly  employed.  Although  by  this  inflation- 
ary policy  the  government  enabled  itself  to  borrow  funds  at  lower  rates  of 
interest  than  would  otherwise  have  been  possible,  it  was  compelled  to  borrow 
much  more  money  than  it  otherwise  would  have  for  the  purchase  of  the  same 
quantity  of  war  supplies-,  and  it  will  therefore  be  compelled  to  pay  a  much 
larger  amount  of  interest. 

As  our  currency  and  circulating  credit  are  gradually  being  deflated  and 
the  price  level  goes  downward,  as  it  must  if  we  are  to  return  to  a  safe  gold 
basis,  the  purchasing  power  of  the  dollar  will  rise  and  the  government  will  be 
called  upon  to  pay  its  huge  war  debt,  principal  and  interest,  in  much  more 
valuable  dollars  than  it  borrowed.  Upon  the  shoulders  of  the  taxpayer  the 
increased  burden  will  fall. 

Injustice  to  Liberty  Bond  Buyers. 

(b)  The  government's  policy  caused  loss  to  very  many  persons  who,  in 
good  faith,  bought  Liberty  Bonds  and  Victory  Notes  under  the  enthusiasm 
of  patriotic  war  drives,  having  been  led  to  believe  that  these  bonds  were  invest- 
ments which,  considering  their  gilt-edged  character,  were  offering  fair  market 
rates  of  interest.  The  bonds  in  nearly  every  case  fell  below  par  in  the  market 
as  soon  as  the  drive  was  over,  and  they  liave  continued  below  par  ever  since, 
despite  the  artificially  buoying  effect  of  the  low  and  preferential  discount 
rates  so  long  given  by  Federal  Reserve  Banks  on  paper  collateraled  by  them. 

The  3>4  per  cent,  bonds  of  the  first  Liberty  Loan  and  the  3^  per  cent. 
Victory  Liberty  Loan  notes  have  very  high  market  values,  compared  to  the 
interest  rates  they  pay,  by  reason  of  their  exemption  from  all  taxes  except 
estate  or  inheritance  taxes ;  and  the  other  bonds  are  also  buoyed  up  by  lesser 

54 


tax  exemption  privileges;  but  these  privileges  are  all  chiefly  of  ffnportance  to 
wealthy  people  and  are  of  little  value  to  the  great  masses  of  bondholders 
possessing  small  or  only  moderate,  incomes.  The  masses  of  people  who  bought 
these  bonds  at  par  and  hold  them  to  maturity  will  realize  upon  them  a  much 
lower  interest  yield  thaa  the  fair  market  rate  during  much  of  the  time  they 
hold  them;  while  those  who  have  already  sold  them — and  they  are  many — 
have  usually  suffered  substantial  losses.  Losses  may  well  prove  larger  for  some 
time  in  the  future  as  the  preferentially  low  rates  offered  by  the  banks  on  paper 
collateraled  by  the  government  debt  are  discontinued,  and  if  the  Federal  Re- 
serve Banks  follow  up  their  present  policy  of  maintaining  high  discount  rates. 
The  unloading  on  the  investment  market  of  the  large  quantities  of  these  bonds 
now  owned  by  banks  or  held  by  them  as  collateral  for  loans  would  still 
further  tend  to  depress  these  prices. 

This  loss  to  patriotic  investors  would  have  been  completely  or  largely 
avoided  had  the  bonds  been  floated  at  fair  rates  of  interest,  making  them 
much  more  attractive  as  investments,  and  without  the  artificial  but  neces- 
sarily temporary  support  of  a  mistaken  inflationary  policy.  Then  the  bonds 
would  have  found  their  way  to  a  lesser  extent  into  the  portfolios  of  banks 
as  collateral  for  loans  (with  resulting  inflation),  and  to  a  greater  extent  into 
safety  deposit  boxes.  They  would  have  been  paid  for  much  more  largely  out 
of  savings  representing  real  economies  in  living,  and  much  less  out  of  inflated 
bank  credit. 

Over-Speculation. 

(c)  A  third  evil  result  arose  from  the  fact  that  the  low  Federal  Reserve 
discount  rate  and  the  administration's  inflationary  policy  were  continued  for 
a  long  time  after  the  armistice  was  signed.  This  gave  rise  to  excessive 
speculation  during  the  year  following  the  close  of  the  war.^  It  caused  further 
credit  expansion;  weakened  still  more  our  gold  reserve  position,  and  needlessly 
delayed  the  time  of  return  to  more  stable  economic  conditions.  It  is  in  no 
small  degree  responsible  for  the  wide- spread  feeling  of  uncertainty  and  in- 
security that  at  present  pervades  our  economic  life. 

1  The  numbers  of  shares  traded  in  on  the  N  ew  York  Stock  Exchange  during  the  years  1913 
to  1919  were  as  follows  (in  millions) : 

1913 83.5  1917  .     .    185.6 

1914 47.9  1918  .  144.1 

1915 173.1  1919  316.8 

1916 233.3 


N 


55 


Limitations  of  Federal  and  State 
Control  and  Regulation 


Report  of  Sub-Committee 


EVERETT  COLBY 

Chairman 


LIMITATION  OF  FEDERAL  AND  STATE  CONTROL 
AND  REGULATION 

Opposition  to  overcentralization  of  the  war  period — ^Three  demands  for 
increase  of  federal  activities:  (1)  Education;  (2)  Public  health;  (3)  Public 
Roads  and  Highways — Educational  conditions  and  requirements — Public  edu- 
cation both  a  state  and  a  national  function — Unequal  and  inadequate  school 
facilities — Present  status  of  rural  schools — Some  causes  of  present  educational 
conditions — General  conclusions — Public  roads  and  development  of  highways — 
Some  reasons  for  and  against  a  national  system  of  highways — A  department 
of  public  works— Public  health  activities  of  the  Federal  and  State  Govern- 
ments— Physical  education. 

OPPOSITION    TO    OVERCENTRALIZATION  OF  THE  WAR  PERIOD 

The  ordinary  development  or  extension  of  the  powers  and  functions  of  the 
Federal  Government  which  proceeded  along  the  lines  of  a  broad  construction  of 
the  constitution  and  enabled  us  to  meet  new  growing  needs  of  our  national 
life  was  interrupted  by  the  war.  The  exercise  of  war  powers  by  Congress  and 
the  President  during  the  recent  years  immediately  preceding  and  during  our 
participation  in  the  world  war  has  resulted  in  such  an  extension  of  federal 
powers  and  functions  under  the  war  necessity  of  mobilizing  our  total  national 
resources,  and  in  so  many  instances  has  resulted  in  mal-administration  of  un- 
aveidable  undertakings  on  a  scale  for  which  the  machinery  of  the  national 
government  was  entirely  inadequate  that  there  is  a  very  general  feeling 
brought  out  in  the  replies  to  our  questionnaires  against  the  continuance  or 
further  extension  of  many  of  the  present  functions  of  the  Federal  Government. 

The  attitude  of  public  opinion  is  one  of  irritation  at  an  overextension  of 
federal  powers  and  their  application  to  many  matters  of  purely  local  concern. 
There  is  a  growing  realization  of  the  interdependence  of  the  states  and  of  the 
need  for  national  standards  and  uniformity  in  laws  affecting  vital  social  inter- 
ests that  are  neither  sectional  nor  local.  There  is  a  diminishing  sense  of 
pride  in  local  initiative  and  exclusiveness.  However,  many  persons  who  are 
sympathetic  with  the  attitude  are  jealous  of  a  large  measure  of  local  auton- 
omy and  are  fearful  of  the  administrative  difficulties  and  extravagance  of  ac- 
tivities of  a  Federal  Government  dealing  with  so  large  and  complex  an  area 
as  the  United  States. 

THREE  DEMANDS  FOR  INCREASE  OF  FEDERAL  ACTIVITIES 

While  innumerable  demands  are  being  constantly  made  upon  the  federal 
power  and  the  resources  of  the  national  government  by  those  who  seek  to 
evade  a  proper  sense  of  local  responsibility  the  war  has  revealed  three  out- 
standing matters  of  both  local  and  national  concern  which  require  greater  co- 
operation between  local  and  national  authorities:  (1)  Education;  (2)  Public 
Health,  and  (3)  Public  Roads  and  Highways. 

The  Select  Draft  law  showed  an  alarming  rate  of  illiteracy  among  native 
whites  of  native  parents,  greater  than  that  even  among  the  children  of  recent 
immigrants.    The  records  of  recruiting  offices  previous  to  the  war  show  that 


in  many  of  our  large  cities  more  than  75  per  cent  of  the  applicants  were  re- 
jected because  of  physical  defects. 

In  spite  of  lowered  physical  standards  and  the  fact  that  the  men  drafted 
for  the  Great  War  included  the  "flower  of  our  youth"  the  report  of  the  Pro- 
vost-Marshal for  1918  showed  that  more  than  37  per  cent  of  these  young  men 
were  rejected  from  full  military  service  because  of  physical  defects.  Many  of 
those  accepted  were  unfit  to  face  the  rigors  of  modern  warfare. 

The  importance  of  good  roads  for  motor  transport  was  impressed  upon 
the  public  by  the  experiences  of  the  war.  Great  impetus  was  given  to  our  enor- 
mous needs  for  road  construction.  The  growing  use  of  motors  for  industrial 
and  especially  agricultural  purposes  bears  a  vital  relation  to  the  cost  of  living 
and  will  create  a  demand  which  only  the  highest  cooperation  between  national 
and  state  governments  can  possibly  supply. 

EDUCATIONAL  CONDITIONS  AND  REQUIREMENTS 

Education  will  in  time  cure  nine-tenths  of  the  isms  of  the  day;  lack  of  it 
has  retarded  progress  in  certain  countries  (witness  Russia)  many  years,  and 
has  provided  a  fertile  field  for  the  bolshevist,  syndicalist  and  socialist.  No 
medicine  other  than  education  will  serve  as  a  permanent  antidote  for  these 
evils. 

Eventually,  the  coming  generation  will  rule  and  run  the  government,  and 
unless  elementary  schooling  is  provided,  and  a  proper  understanding  of  cer- 
tain underlying  principles,  such  as  vested  property  rights,  government  by  law, 
etc.,  acquired,  our  people  cannot  live  in  peace  and  harmony  and  our  democratic 
form  of  government  cannot  endure.  Whereas  a  higher  education  or  knowl- 
edge is  often  dangerous,  without  a  primary  training  a  people  cannot  determine 
•their  own  thoughts.    They  will  lack  discretion  or  any  confident  judgment. 

The  measure  of  a  nation's  strength,  both-  for  the  tasks  of  war  and  the 
pursuits  of  peace,  is  the  standard  of  the  public  school,  and  if  the  organization 
of  a  government  is  so  loose  and  so  imperfect  that  it  cannot  guarantee  to  the 
youth  of  the  country  a  uniform  and  thorough  education,  then  there  is  a  vital 
weakness  in  that  nation's  social  structure  that  should  be  corrected  and 
strengthened  at  the  earliest  possible  moment. 

PUBLIC  EDUCATION  IS  BOTH  A  STATE  AND  NATIONAL  FUNCTION 

While  the  support  and  direction  of  the  public  school  has  been  and  still  is 
chiefly  a  matter  of  local  concern  administered  by  the  smallest  units  of  gov- 
ernment— school  districts,  townships  and  municipal  corporations — ^most  states 
legally  provide  that  their  educational  system  is  a  state-wide  function  and  raise 
and  distribute  state  funds  to  supplement  and  assist  the  local  school  budgets. 

In  similar  manner  the  Federal  Government  has  already  pursued  the  same 
policy  in  the  distribution  of  public  lands  for  educational  purposes  in  the  sev- 
eral states,  and  in  the  passage  of  the  Morrill,  Hatch  and  Adams  Acts  with  their 
land  and  money  grants  to  the  states  for  the  establishment  and  maintenance 
of  colleges  of  agriculture  and  mechanic  arts,  and  through  the  recently  enacted 
Smith-Hughes  law  appropriating  federal  funds  for  the  encouragement  and  sup- 
port of  vocational  schools  of  secondary  grade. 

These  acts  establish  the  principle  of  national  cooperation  with  the  states, 
and  there  is  a  growing  demand  that  it  be  extended  to  include  primary  educa- 
tion in  the  public  schools. 

60 


UNEQUAL  AND  INADEQUATE  SCHOOL  FACILITIES 

Recent  surveys  and  investigations  prove  without  question  that  a  weak- 
ness exists  in  the  social  structure  of  the  United  States  to-day,  due  to  the  fact 
that  many  of  the  states  do  not  maintain  an  adequate  system  of  pubHc  school 
instruction,  with  the  result  that  the  whole  country  suffers  in  a  lowering  of  the 
moral,  physical  and  educational  standard.  Millions  of  boys  and  girls  in  our 
rural  districts  are  deprived  of  what  should  be  considered  a  natural  right, 
namely,  the  right  to  a  primary  education  of  sufficient  completeness  to  place 
them  on  an  equal  footing  and  give  them  an  equal  start  in  life  with  urban 
children  without  regard  to  the  state  or  locality  in  which  they  m,ay  be  born 
or  in  which  they  may  reside. 

One-half  of  all  the  school  children  in  the  United  States  are  now  receiving 
instruction  under  immature  and  untrained  teachers.  Of  the  twenty  million 
boys  and  girls  in  our  public  schools  to-day  it  has  been  estimated  that  one  mil- 
lion are  being  taught  by  teachers  whose  education  has  been  limited  to  seven 
or  eight  years  in  the  elementary  schools;  that  700,000  are  being  taught  by 
teachers  who  are  little  more  than  boys  and  girls  themselves,  and  whose  appre- 
ciation of  their  responsibility  must  in  consequence  of  their  youth  and  inexpe- 
rience be  extremely  slight.  That  100,000  of  our  school  children  are  being 
taught  by  teachers  that  have  had  no  special  preparation  for  their  work,  and 
whose  general  education  is  far  from  adequate. 

Approximately  600,000  public  school  teachers  in  the  United  States  fall 
into  the  following  age  classification:  100,000  are  from  seventeen  to  nine- 
teen years  old ;  150,000  are  not  more  than  twenty-one  years  old,  150,000  teach- 
ers have  served  in  our  public  schools  but  two  years  or  less.  As  to  their  edu- 
cational qualifications  the  following  estimates  have  been  made:  30,000  pub- 
lic school  teachers  have  had  no  education  beyond  the  eighth  grade  of  the  ele- 
mentary school ;  100,000  have  had  less  than  two  years'  education  beyond  the 
eighth  grade;  that  200,000  have  had  less  than  four  years'  education  beyond 
the  eighth  grade ;  that  300,000  have  had  no  more  than  four  years*  education 
beyond  the  eighth  grade,  while  300,000  have  had  no  special  preparation  for  the 
work  of  teaching. 

PRESENT  STATUS  OF  RURAL  SCHOOLS 

While  these  figures  reveal  a  deplorable  condition  throughout  the  country 
the  conditions  are  of  course  more  acute  in  the  rural  districts,  and  when  we 
realize  that  58  per  cent  of  the  school  population  of  the  entire  country  is  rural, 
that  five-eighths  of  the  ministers,  that  six-sevenths  of  the  college  professors, 
three-fourths  of  the  influential  men  in  our  cities,  and  about  the  same  propor- 
tion of  our  prominent  public  men  come  from  the  country,  to  say  nothing  of 
the  fact  that  twenty-six  of  our  twenty-seven  Presidents  have  been  country 
boys,  we  can  appreciate  the  gravity  of  the  situation  and  the  importance  of 
the  question  to  the  country  as  a  wholistricts  has  been  admirably  set  forth 

The  school  condition  in  our  rural  de. 
in  a  report  issued  by  the  National  Education  Association  containing  the  fol- 
lowing statements: 

1.  The  average  annual  school  term  of  the  rural  school  is  137  7/10  days, 
46  6/10  days  less  than  that  of  the  urban  school,  and  considerably  less  than 
that  of  most  of  the  European  countries. 

61 


2.  58  5/10  per  cent  of  the  total  school  population  and  62  3/10  per  cent  of 
the  total  of  school  enrollment  is  rural,  but  only  45  5/10  per  cent  of  the  total 
annual  expenditure  for  teachers'  salaries  in  the  United  States  is  for  salaries 
of  rural  teachers.  The  rural  teacher's  salary,  therefore,  is  much  less  than  the 
average  salary  for  the  entire  country,  less  than  the  salary  of  the  urban  teacher, 
and  less  than  the  salary  of  teachers  in  most  European  countries. 

3.  About  80  per  cent  of  the  rural  schools  are  one-teacher  schools  that 
require  instruction  in  seven  or  eight  grades,  with  from  twenty-five  to  thirty- 
five  daily  recitations,  with  an  average  recitation  period  of  from  ten  to  fifteen 
minutes. 

4.  About  2  3/10  per  cent  of  the  school  teachers  teach  no  more  than  one 
year  in  the  same  school. 

5.  Practically  all  of  the  one-teacher  rural  schools,  and  a  large  majority  of 
the  other  rural  schools,  are  taught  by  teachers  without  professional  training. 
Thousands  of  these  teachers,  perhaps  a  majority  of  them,  are  without  even 
high  school  training,  many  of  them  being  inexperienced  boys  and  girls  from 
sixteen  to  nineteen  years  of  age. 

6.  Illiteracy  is  twice  as  great  in  the  rural  as  in  urban  territory,  and  ten 
times  as  great  among  children  of  native-born  parents  as  among  children  of 
foreign-born  parents. 

7.  Forty  states  have  county  supervision  of  rural  schools  by  county  super- 
intendents, 82  per  cent  of  whom  have  no  assistance  of  any  sort.  The  average 
number  of  school  buildings  per  county  under  the  supervision  of  the  county 
superintendent  is  84,  teachers  132. 

8.  Only  a  very  small  percentage  of  country  boys  and  girls  have  any  op- 
portunity for  high  school  instruction.  Comparatively  few  of- them  ever  com- 
plete the  elementary  grades. 

SOME  CAUSES  OF  PRESENT  EDUCATIONAL  CONDITIONS 

The  chief  cause  of  the  inadequate  public  school  facilities  in  so  many  states 
and  localities  and  the  unequal  lower  standard  of  educational  work  in  some  com- 
munities compared  with  others,  and  the  large  number  of  poorly  paid  and  badly 
equipped  teachers,  is  not  so  much  a  la 2k  of  appreciation  of  the  value  of  edu- 
cation or  of  the  rights  of  boys  and  girls,  whether  born  in  Maine  or  Texas, 
Washington  or  Florida,  to  reasonably  equal  educational  opportunities.  It  is 
rather  the  financial  limitations  of  artifically  small  school  districts  with  but 
little  taxable  value,  and  local  prejudices  against  outside  control  or  interfer- 
ence whether  of  town,  country  or  state.  Many  communities  are  making  real 
sacrifices  to  maintain  modern  educational  systems,  and  there  is  widespread 
recognition  of  the  sacrifices  which  thousands  of  teachers  are  making  to  main- 
tain high  standards,  sometimes  in  out-of-the-way  rural  schools.  With  all  that 
can  be  truthfully  said  of  the  inadequacy  of  school  facilities  in  general,  there 
should  be  greater  state-wide  and  even  national  recognition  of  the  excellent 
work  done  by  many  individual  teachers,  who  are  underpaid  and  poorly  sup- 
ported with  tools  for  their  work. 

The  second  cause  of  the  inadequacy  of  the  public  schools,  and  especially 
of  elementary  education,  is  undoubtedly  a  less  keen  appreciation  on  the  part 
ef  all  of  the  people  of  the  true  purposes  of  education  and  its  universal  social 
value,  than  was  true  in  our  early  American  communities.  The  simple  life  and 
the  less  complex  economic  conditions  of  the  agricultural  communities  and  the 

62 


smaller  towns  and  cities,  during  the  first  century  of  the  Republic,  undoubtedly 
led  to  a  higher  appraisal  of  the  value  of  educational  opportunity  for  every 
individual  boy  and  girl,  and  of  its  value  to  the  community  as  a  whole. 

The  third  cause  is  the  lack  of  an  adequate  number  of  trained  teachers 
due  to  the  slowness  of  the  various  State  Governments  and  of  the  National 
Government  to  meet  the  requirements  by  the  development  of  a  proper  sys- 
tem of  professional  and  technical  education. 

GENERAL    CONCLUSIONS 

It  is  clear  from  our  inquiries  that  numbers  of  people  are  considering 
some  recognition  of  greater  national  responsibility  for  education.  Some  would 
even  go  so  far  as  to  make  every  aspect  of  education  a  matter  of  fundamental 
national  concern,  and  to  concentrate  our  national  resources  upon  the  strength- 
ening and  building  up  of  the  remotest  rural  school  in  the  country's  system 
of  primary  education.  Others  recognize  that  the  present  is  not  a  favorable 
time  for  the  Federal  Government  to  take  on  new  financial  .obligations,  and 
that  the  maintenance  of  its  present  policy  of  federal  aid  to  agricultural  edu- 
cation and  vocational  training,  and  the  establishment  of  a  Bureau  of  Educa- 
tion for  research,  general  supervision  and  dissemination  of  the  study  of  edu- 
cational methods,  is  as  far  as  the  government  can  go  until  it  has  reduced 
the  war  debt  and  lessened  the  burdens  of  federal  taxation. 

Moreover,  there  is  a  considerable  body  of  public  opinion,  which  holds 
that  there  is  a  real  change  to  be  apprehended  from  the  tendency  to  transfer 
to  the  Federal  Government  functions  heretofore  recognized  as  state  and  local. 
They  hold  that  our  federal  system  with  its  provisions  for  home  rule  and  local 
autonomy  was  and  is  sound,  and  that  centralization  in  Washington  means 
lack  of  responsibility  and  eventually  administrative  break-down. 

The  proposal  for  a  new  Department  of  Education,  with  or  without  Cabinet 
representation,  has  strong  support  from  those  who  believe  that  it  would  serve 
to  accentuate  and  improve  the  work  of  the  Federal  Government  along  the 
lines  of  its  present  policies ;  but  there  is  a  strong  body  of  public  opinion  to  the 
contrary.  The  present  proposal  for  the  creation  of  an  executive  depart- 
ment with  a  Secretary  of  Education  as  a  member  of  the  President's  Cabi- 
net, will  be  judged  not  only  as  a  measure  of  administrative  reform,  but  also 
in  connection  with  the  accompanying  proposal  that  the  Government  should 
spend  a  very  large  sum,  perhaps  $100,000,000  annually,  to  be  apportioned  to 
the  states  for  the  removal  of  illiteracy,  for  Americanization  of  •  the  foreign 
born,  for  the  payment  of  teachers'  salaries  in  elementary  schools,  for  physi- 
cal education  and  instruction  in  the  principles  of  health,  for  the  training  of 
teachers  and  for  research  and  advisory  direction  by  the  Federal  Government 
in  all  these  several  departments  of  education.  It  is  intended  that  the  federal 
aid  so  given  to  the  states  should  be  without  compulsion  or  control  of  their 
local  educational  administration,  but  conditioned  upon  the  states  which  accept 
such  aid  coming  up  to  certain  minimum  standards  in  the  use  of  federal  funds, 
and  also  conditioned  upon  their  making  corresponding  financial  provision  pro- 
portionate to  their  ability  for  other  educational  matters  to  which  the  federal 
funds  may  or  may  not  be  applied.  There  should  be  no  restriction  of  local 
economy,  and  the  freedom  of  local  educational  authority  to  raise  and  adminis- 
ter their  own  educational  funds. 

63 


The  proposal  for  a  Federal  Department  of  Education  along  these  lines  has 
very  large  and  significant  support  in  educational  circles,  and  is  unanimously  en- 
dorsed by  the  National  Education  Association.  It  has  been  endorsed  also  by 
the  General  Federation  of  Women's  Clubs,  the  American  Federation  of  Labor, 
the  National  Association  of  Women  Voters,  and  many  professional  and  busi- 
ness organizations.  The  National  Economic  League  submitted  this  proposal  to  a 
special  committee  of  123  members,  selected  with  respect  to  competency  in 
dealing  with  educational  subjects,  and  received  favorable  replies  from  76,  un- 
favorable from  8. 

PUBLIC  ROADS  AND  DEVELOPMENT   OF  HIGHWAYS 

The  war  greatly  stimulated  the  growth  of  motor .  transportation.  This 
has  added  to  the  demand  for  better  roads  over  which  the  products  of  farmers 
can  be  marketed  more  economically  and  the  means  of  communication  between 
rural  and  urban  communities  can  be  improved.  While  the  construction  and 
repair  of  highways  is  still  largely  a  function  of  the  smallest  units  of  govern- 
ment, practically  all  of  the  states  now  construct  state  roads  and  find  it  to 
their  economic  advantage  to  encourage  and  supplement  the  activities  of  the 
sub-divisions  of  state  government. 

There  is  now  a  strong  and  well-founded  demand  for  a  national  road  policy. 
This  demand  takes  two  forms — (1)  financial  assistance  to  the  states  for  the 
building  of  roads  under  state  authority  and  through  state  agencies  conditioned 
only  upon  the  state  itself  spending  upon  road  construction  at  least  as  much 
as  it  receives  from  the  Federal  Government;  (2)  a  system  of  national  high- 
ways paid  for  by  the  National  Treasury  and  constructed  under  national  au- 
thority. 

The  first  demand  has  already  been  partially  met  since  1893  when  Congress 
appropriated  $10,000  for  the  investigation  of  road  construction  and  road  man- 
agement. Since  1913  Congress  has  spent  large  sums  of  money,  and  in  the  fiscal 
year  1919  made  available  $168,000,000,  to  be  apportioned  among  the  states  for 
road  construction  conditioned  upon  each  state  adding  from  its  own  funds  an 
equal  amount  to  its  apportionment. 

Under  the  existing  law  federal  funds  are  distributed  to  the  State  High- 
way Department  in  the  several  states  for  use  by  them  upon  any  mile  or  mileage 
they  may  determine  upon  and  without  reference  to  the  location  or  the  type 
of  road  to  be  built;  provided,  however,  that  the  state  assume  the  full  ex- 
pense of  maintenance  of  all  roads  so  constructed.  The  federal  funds  for  these 
purposes  are  administered  by  a  Bureau  in  the  Department  of  Agriculture  and 
the  amount  of  such  funds  is  being  increased  every  year. 

The  present  need  of  retrenchment  and  economy  in  national  finances  may 
make  it  impossible  to  increase  the  funds  thus  made  available  for  federal  aid 
to  road  construction,  without  great  danger  of  adding  to  the  high  cost  of  living 
and  thus  defeating  one  of  the  economic  results  sought  for  in  the  encourage- 
ment of  highway  construction. 

The  second  proposal  is  new.  It  has  back  of  it  the  well  organized  and 
numerically  strong  support  of  the  automobile  industry  and  the  great  numbers 
of  people  who  are  making  increased  use  of  motor  transportation,  on  more  thai 
a  local  scale,  for  business  and  pleasure.  The  construction  of  national  highwayf 
has  also  in  its  favor  many  important  considerations  of  military  strategy,  na- 
tional defense  and  national  unity.    There  are  few  things  that  more  clearly  in- 

64 


dicate  the  social  status  of  a  nation  than  the  character  of  its  roads.  National 
roads,  even  more  than  sectional  and  regional  road  development,  are  the  indicia 
of  organized  prosperity;  sure  signs  of  intelligence  and  cohesion  in  the  social 
unit.  It  is  the  common  experience  of  a  traveler  who  enters  a  country  over 
bad  roads  that  he  finds  there  poor  houses,  poor  farms  and  poor  people.  Where 
he  passes  a  toll-gate  he  usually  meets  a  pauper. 

In  the  great  economic  development  after  the  Civil  War  characterized  by 
the  tremendous  progress  in  steam  railroad  transportation,  the  government 
found  it  necessary  through  land  grants  and  in  other  ways  to  assist  in  the 
building  of  our  national  system  of  transportion.  It  looks  very  much  as  though, 
in  the  new  era  of  reconstruction  upon  which  we  have  just  entered,  that  the 
potentialities  of  motor  transport  are  such  that  the  Federal  Government  will 
be  compelled  to  play  some  role  in  the  development  of  national  highways.  How 
much  it  can  do  or  promise  to  do  immediately  will  necessarily  depend  upon  its 
fiscal  policies  and  the  reorganization  of  government  finances. 

SOME    REASONS    FOR    AND    AGAINST    A     NATIONAL    SYSTEM    OF 
HIGHWAYS. 

The  proposal  to  construct  and  forever  maintain  solely  at  the  expense  of  the 
National  Government  a  national  system  of  highways  und^r  a  Federal  Highway 
Commission  is  advocated  on  the  following  grounds  in  addition  to  the  general 
considerations  already  referred  to:  ,(1)  reduction  and  elimination  of  waste  in 
transportation  costs,  thus  lowering  the  cost  of  food  and  other  products  to  the 
consumer;  (2)  increased  production  and  better  marketing  of  farm  products; 
(3)  improvement  of  postal  facilities,  especially  in  rural  postal  delivery — of 
benefit  to  the  farmer  and  the  consumer  of  farm  products ;  (4)  concentration  of 
government  funds  upon  roads  of  a  durable  type  and  release  of  state  and  county 
funds  for  better  development  of  state  and  county  roads  and  the  building  of 
feeders  to  the  main  national  system;  (5)  equitable  distribution  of  the  cost  of 
construction  among  all  of  the  beneficiaries  of  good  roads,  who  are  the  majority 
of  citizens  of  the  United  States ;  (6)  educational  and  recreational  value  of  na- 
tional highways. 

Opposed  to  these  considerations  it  is  urged  that:  (1)  we  cannot  afford 
suflJicient  expenditure  on  a  national  scale  for  a  long  time  to  come  to  make  it 
worth  while  for  the  Federal  Government  to  do  more  than  supplement  state  and 
local  expenditures  through  grants  of  funds  to  state  and  local  authority ;  (2)  that 
federal  expenditure  for  any  such  purpose  would  be  wasteful  and  ineflScient  and 
also  administered  by  political  considerations  which  have  led  in  the  past  to  ex- 
travagance and  to  corrupt  and  pork-barrel  practices  in  connection  with  mariy 
public  improvements. 

A  DEPARTMENT  OF  PUBLIC  WORKS 

The  proposal  for  the  creation  of  a  Department  of  Public  Works  in  which 
the  varied  public  works  activities  of  the  Federal  Government  shall  be  concen- 
trated, is  advocated  by  many  who  answered  our  questionnaire.  Several  other 
measures  of  governmental  reconstruction  are  under  consideration,  such  as  the 
reorganization  of  the  Treasury  Department  in  conformity  with  the  establish- 
ment of  a  National  Budget  System  so  as  to  restrict  its  administrative  activities 
to  fiscal  and  revenue  affairs.    The  proposal  to  reorganize  the  Department  of  the 

65 


Interior  in  a  similar  manner  by  removinjr  and  placing  in  other  departments  many 
of  its  present  activities  such  as  the  Patent  Office,  the  Bureau  of  Pensions,  the 
Bureau  of  Indian  Affairs  and  other  riiatters  having  no  relation  to  public  works 
Bureau  of  Education,  the  Bureau  of  Indian  Affairs  and  other  matters  having 
no  relation  to  public  works  and  to  concentrate  in  this  department "  all  the 
public  works  and  engineering  functions  now  scattered  through  nina  separate 
departments  and  included  in  the  activities  of  some  thirty-nine  bureaus  and 
services  of  the  Federal  Government  is  undoubtedly  a  meritorious  proposal.  It 
has  strong  and  almost  unanimous  .support  of  engineering  societies,  architects 
and  business  organizations  in  all  parts  of  the  country.  Whether  it  is  thought 
best  to  make  the  Department  of  the  Interior,  with  its  Executive  Secretary 
who  is  a  member  of  the  President's  Cabinet,  the  new  Department  of  Public 
Works  or  to  proceed  for  the  present  before  the  general  reorganization  of  ad- 
ministrative functions  is  undertaken  by  establishing  a  National  Public  Works 
Service^  to  include  the  concentration  of  all  the  present  public  works  and  engi- 
neering functions  in  one  national  service  which  might  be  placed  in  the 
Department  of  the  Interior,  is  a  matter  of  public  policy  which  might  well 
have  the  consideration  of  Congress.  The  development  of  a  central  public 
works  department  involves  a  reorganization  which  vitally  touches  almost  every 
existing  department  of  the  Federal  Government.  It  would  almost  compel  a  con- 
sideration of  the  enttre  basis  on  which  the  Federal  Government  is  organized 
on  its  executive  side  as  a  business  enterprise  and  it  is  thought  by  many  that 
a  complete  revision  of  the  federal  machinery  of  government  might  be  under- 
taken, giving  proper  emphasis  to  this  particular  phase  without  encountering 
any  greater  difficulties  than  this  particular  reorganization  would  meet.  On  the 
other  hand  a  majority  of  those  who  appreciate  the  political  difficulties  of  any 
general  reorganization  undoubtedly  think  that  the  simpler  way  would  be  to  make 
a  concrete  start  by  transforming  the  present  Department  of  the  Interior  into 
a  Department  of  Public  Works  or  by  creating  in  the  present  Department  of  the 
Interior  a  Public  Works  Service. 

PUBLIC  HEALTH  ACTIVITIES  OF  THE   FEDERAL   AND   STATE   GOV- 
ERNMENTS 

There  are  on  the  statue  books  many  federal  laws  enacted  for  the  protec- 
tion of  the  public  health,  and  there  is  established  in  the  Treasury  Department 
a  Bureau  of  the  Public  Health  Service.  In  quite  a  number  of  other  depart- 
ments, bureaus  and  divisions  of  the  Federal  Government,,  provision  has  been 
made  by  Congress  for  carrying  on  limited  federal  health  functions.  It  has 
been  generally  thought  that  such  division  of  authority  and  responsibility  is 
likely  to    create  confusiojn  and  duplication  of  work. 

The  more  important  federal  laws  relating  to  the  United  State  Public 
Health  Service  are  the  following: 

An  act  to  prevent  the  introduction  of  contagious  or  infectious  diseases  into 
the  United  States.      (Act  Anr.  29,  1878.  ch.  66.   20  Stat.  L.   37.) 

Epidemic  fund  to  be  expended  by  the  President  is  established  by  sundry  civil 
act.      (Act  AuK.  7.  1882.  ch.  433,  22  Stat.  L.  315.) 

An  act  to  prevent  the  introduction  of  contagious  diseases  from  one  State  to 
another  and  for  the  punishment  of  certain  offenses.  (Act  Mar.  27,  1890,  ch.  51, 
26  Stat.  L.  31.) 

An  act  granting  additional  quarantine  powers  and  imposing  additional  duties 
upon  the  Marine-Hospital  Service.      (Act  Feb.  15,  1893,  ch.  114,  27  Stat.  L.   449.) 

66 


(Amended  by  act  of  Aug.  18,  1894,  ch.  300,  28  Stat.  L.  372;  and  act  of  Mar.  3,  1901, 
ch.  836.  31  Stat.  L.  1086.) 

An  act  to  increase  the  efficiency  and  change  the  name  of  the  United  States 
Marine-Hospital  Service.      (Act  July  1,  1902,  ch.   1370,  32  Stat.  L.  712.) 

An  act  to  regulate  the  sale  of  viruses,  serums,  toxins,  and  analagous  products 
In  the  District  of  Columbia,  to  regulate  interstate  traffic  in  said  articles,  and  for 
other  purposes.      (Act  July  1,  1902,  ch.  1378,  32  Stat.  L.  728.) 

An  act  to  further  protect  the  public  health  and  make  more  effective  national 
quarantine.      (Act  June  19,  1906,  ch.  3433,  34  Stat.  L.  299.) 

An  act  t(?  change  the  name  of  the  Public  Health  and  Marine-Hospital  Service 
to  the  Public  Health  Service,  to  increase  the  pay  of  officers  of  said  service,  and  for 
other  purposes.      (Act  Aug.   14,  1912,  ch.  288,  37  Stat.  L.  309.) 

Interdepartmental  social  hygiene  board  and  division  of  venereal  diseases  estab- 
lished.     (Act  July  9,   1918,  ch.   143.   40  Stat.   L.    886.) 

These  acts,  together  with  various  appropriations  made  by  Congress  from 
time  to  time,  have  resulted  in  the  organization  of  the  Bureau  of  the  Public 
Health  Service,  with  following  divisions: 

1.  The  Division  of  Foreign  Quarantine,  to  prevent  the  introduction  of  com- 
municable diseases  from  foreign  countries  into  the  United  States. 

2.  The  Division  of  Domestic  Quarantine,  to  prevent  interstate  spread  of  disease 
and  to  cooperate  with  States  in  the  prevention  of  interstate  spread. 

3.  The  Division  of  Venereal  Diseases,  to  cooperate  with  States  in  the  control 
of  venereal  diseases. 

4.  The  Division  of  Sanitary  Reports  and  Statistics,  for  the  collection  and 
publication  of  information  regarding  the  prevalence  of  diseases  and  health  condi- 
tions. 

5.  The  Division  of  Scientific  Research,  for  the  study  and  investigation  of  the 
diseases  of  man  and  conditions  influencing  the  propagation  and  spread  thereof, 
including  sanitation  and  sewage  and  the  pollution,  either  directly  or  indirectly,  of 
the  navigable  streams  and  lakes  of  the  United  States,  and  to  regulate  the  sale  of 
viruses,  serums,  toxins,  and  analogous  products  in  the  District  of  Columbia,  and 
to  regulate  interstate  traffic  in  said  articles. 

6.  The  Hospital  Division,  for  the  care  and  treatment  of  War  Risk  Insurance 
patients,  seamen  of  the  United  States  merchant  marine  and  certain  other  beneffici- 
aries  of  the  service. 

7.  The  Section  on  Public  Health  Education,  for  the  purpose  of  disseminating 
information  concerning  the  prevention  and  control  of  diseases  among  the  people  of 
the  United  States. 

8.  The  Division  of  Personnel  and  Accounts,  for  the  business  management  of 
the  funds  appropriated  by  th6  Congress. 

In  the  opinion  of  many  competent  observers  this  organization  would  be 
able  to  take  care  of  all  reasonable  federal  health  activities  if  sufficient  appropri- 
ations were  provided  by  Congress.  But  in  the  event  that  Congress  provide 
ample  funds,  it  is  urged  that  it  might  be  wise  to  transfer  all  of  the  existing 
federal  health  agencies  in  other  departments,  divisions  or  bureaus,  to  the 
Bureau  of  Public  Health  Service,  in  order  that  their  work  might  be  better  coor- 
dinated and  all  danger  of  duplication  or  waste  be  avoided,  and  that  a  greater 
responsibility  could  be  secured  by  placing  the  Bureau  of  the  Public  Health 
Service  under  an  Assistant  Secretary  of  Health,  such  office  to  be  created  by 
the  act  transferring  all  other  federal  health  activities  to  the  Bureau  of  the 
Public  Health  Service. 

Dr.  Charles  V.  Chapin,  Commissioner  of  Health  in  Providence,  R.  I.,  re- 
cently made  a  survey  of  the  public  health  activities  and  administration  of  all 
the  state  governments,  the  results  of  which  were  submitted  to  the  Council  on 
Public  Health  and  Instruction  of  the  American  Medical  Association,  and  pub- 
lished by  that  Association.  In  the  course  of  his  report  Dr.  Chapin  stated: 
"There  is  not  a  square  foot  of  American  soil  not  included  within  the  juris- 
diction of  some  pubhc  health  or  sanitary  authority,  but  practically  all  are 
working  under  the  great  handicap  of  the  lack  of  community  planning,  and 
organization  of  the  forces  to  fight  disease  over  areas  commensurate  with 
factors  necessary  for  its  control." 

67 


The  growing  importance  of  public  health  functions  exercised  by  govern- 
ment on  a  scale  sufficiently  broad  to  meet  the  conditions  which  make  govern- 
mental functions  effective,  is  very  generally  recognized.  There  is  less  objection 
to  the  extension  of  Federal  power  for  the  prevention  of  disease  or  the  control 
of  epidemics  where  it  is  dealing  with  the  migration  of  germs  that  do  not  respect 
State  boundaries,  and  in  the  transmission  of  communicable  diseases,  than  in 
almost  any  other  sphere  of  Federal  and  State  activity.  State  and  local  agencies 
have  a  vital  interest  in  the  interstate  control  of  conditions,  as  well  as  in  the  intra- 
state and  intracommunity  control.  The  coordination  of  Federal,  State  and  local 
health  agencies  would  seem  to  be  quite  as  urgent  as  the  coordination  of  Federal 
health  activities.  Apparently  sufficient  authority  and  a  good  deal  more  is  al- 
ready vested  in  Federal  agencies  for  the  promotion  of  public  health,  for  the 
prevention  of  disease,  for  the  prolongation  of  life,  and  for  the  conservation  of 
the  vitality  or  man-power  resources  of  the  nation,  than  there  are  sufficient 
appropriations  of  money  and  well  coordinated  administrative  machinery  to  carry 
out  a  national  program. 

The  coordination  has  already  progressed,  and  has  long  since  been  recom- 
mended by  responsible  public  bodies,  public  health  officials  and  medical  men. 
It  is  possible  that  some  further  coordination  of  Federal  public  health  activities 
could  be  accomplished,  although  it  would  not  be  easy  to  consolidate  all  of  these 
in  one  bureau  service  or  department  without  serious  interference  with  the  spe- 
cific duties  and  responsibilities  of  other  divisions  of  the  Government,  such  as 
the  Children's  Bureau,  in  the  Labor  Department ;  the  War  Risk  Insurance  Bu- 
reau, in  the  Treasury  Department,  and  important  bureaus  in  the  War  and  Navy 
Departments.  Such  further  coordination  could  be  more  safely  undertaken  after 
a  thorough-going  survey  of  all  existing  agencies  of  the  Government  which  have 
to  do  with  the  promotion  and  the  protection  of  public  health,  excepting  the 
Medical  Department  of  the  Army  and  Navy,  had  been  made  by  a  joint  com- 
mittee of  Congress  which  might  be  directed  to  prepare  legislation  and  lay  the 
groundwork  for  the  administration  of  a  coordinated  Bureau  Service  or  Depart- 
ment, on  the  sure  basis  of  ascertained  fact. 

The  demand  for  a  Federal  Department  of  Health,  the  head  of  which  would 
be  a  member  of  the  President's  Cabinet,  goes  still  further  than  the  demand  for 
mere  coordination  of  existing  Federal  health  activities  or  a  single  service  under 
an  Assistant  Secretary  of  Health.  It  would  involve  necessarily  increased  ap- 
propriations for  such  a  department,  commensurate  with  the  growing  opportuni- 
ties for  the  prevention  of  disease,  the  promotion  of  health  and  national  vitality, 
and  perhaps  assistance  in  strengthening  State  and  local  health  departments, 
increasing  their  resources  and  the  personnel  in  their  service.  This  demand  for 
a  Public  Health  Department  comes  from  within  and  without  the  present  Public 
Health  Service  of  the  Federal  Government  and  has  the  active  support  of 
medical  and  public  health  associations  and  officials  very  generally  throughout 
the  country.  It  should  be  considered  at  the  present  time  from  three  points  of 
view : 

(1)  The  desirability  of  any  attempt  to  reorganize  the  Public  Health 
Service  apart  from  a  general  reorganization  of  the  Executive  Departments 
of  the  Federal  Government,  which  might  grow  out  of  the  adoption  of  a 
national  budget  system,  and  in  any  event  could  not  be  wisely  undertaken 
until  the  whole  project  was  thoroughly  studied,  examined  and  reported  upon 

68 


by  a  joint  committee  of  Congress,  or  by  a  national  commission  appointed  by 
the  President  with  Congressional  representation. 

(2)  A  consideration  of  the  present  financial  resources,  revenue  system, 
taxation  policies,  war  debt  policies  and  general  liabilities  of  the  Federal 
Government,  over  a  period  of  at  least  the  next  ensuing  ten  years,  as  a 
necessary  first  step  before  a  constructive  public  health  policy  for  the  Fed- 
eral Government  can  be  formulated. 

(3)  The  fact  that  even  the  State  Governments  have  been  unable  to 
supervise  or  control  local  health  conditions  because  of  the  intense  preju- 
dice against  anything  that  looks  like  outside  interference  in  a  matter 
which  is  regarded  as  strictly  local  makes  it  highly  improbable  that  the 

•  Federal  Government  can  succeed  where  the  State  Governments  have  failed. 

PHYSICAL  EDUCATION 

One  of  the  neglected  and  urgent  opportunities  which  the  events  of  the 
recent  war  have  emphasized  in  the  field  of  public  health,  and  with  important 
bearing  on  national  defense,  military  policy  and  education,  is  that  of  the  physical 
education  of  the  youth  of  the  country.  Recent  facts  brought  out  in  connection 
with  the  Select  Draft  Law  and  the  mobi  ization  of  those  fit  for  military  service, 
reveal  sufficiently  alarming  conditions  oncerning  the  physical  preparation  of 
the  men  of  the  country.  A  Major-General  in  the  army  stated  that  the  standards 
in  the  draft  were  dropped  very  low  and  enabled  us  to  take  about  70%,  but  of 
that  only  one  in  five,  or  about  20%,  would  have  passed  the  physical  examination 
required  for  the  regular  army  or  marines  in  times  of  peace.  It  is  also  stated  that 
75%  of  the  school  children  in  the  United  States  have  physical  defects  which  are 
potentially  or  actually  detrimental  to  lealth,  but  that  most  of  them  can  be 
remedied.  This  statement  is  from  an  eminent  medical  authority  in  educational 
work.  A  surgeon  of  the  United  States  Public  Health  Service  stated  that  bad 
health  conditions  in  rural  school  children  are  more  frequent  than  in  city  school 
children.  It  is  believed  that  a  thorough  system  of  physical  education,  for  all 
children  up  to  the  age  of  nineteen,  including  adequate  health  supervision 
and  instruction,  would  not  only  remedy  and  successfully  combat  the  bad  condi- 
tions throughout  the  country,  but  would  also  add  greatly  to  the  economic,  indus- 
trial and  military  strength  of  the  nation. 

In  addition  to  its  military  and  economic  significance,  the  proposal  for  a 
nation-wide  system  of  physical  education  would  give  the  girls  of  the  country  an 
opportunity  for  health  and  normal  physical  development  which  will  insure  the 
physical  fitness  of  the  future  motherhood  of  our  country.  It  is  perhaps  signifi- 
cant that  more  than  50  organizations  have  endorsed  the  proposal  for  universal 
physical  education,  including  a  number  of  labor,  civic,  and  women's  organia- 
tions  which  are  opposed  to  universal  military  training.  Nineteen  States  have 
laws  in  some  way  relating  to  the  development  of  physical  education  on  a  State- 
wide basis,  but  only  a  few  of  the  wealthier  States  have  made  an  effective  start 
toward  providing  leadership  and  appropriations  for  the  State-wide  development 
of  physical  education. 

There  are  in  the  schools  of  the  country  between  the  ages  of  6  and  18  ap- 
proximately 25  million  children.  There  are  in  the  country  only  approximately 
5500  trained  teachers  of  physical  education.  Forty-five  thousand  trained  teach- 
ers will  be  needed  to  give  adequate  physical  education  supervision  for  all  the 
children  (allowing  approximately  500  to  each  teacher) .    Only  7  normal  schools 


and  37  colleges  and  universities  have  special  department  for  training  physical 
education  teachers. 

At  the  present  time,  only  3000  pupils  in  colleges,  universities  and  normal 
schools  are  training  to  become  physical  education  teachers  (this  includes  those 
in  the  summer  courses,  as  well  as  the  full  year  courses.) 

The  total  amount  of  money  appr(q.triated  annually  by  the  various  State 
Legislatures  for  physical  education  amounts  to  approximately  $500,000.  (This 
includes  $294,000  being  expended  by  the  State  of  New  York.)  Only  eight  States 
have  State  Directors  of  Physical  Education. 

The  Federal  Government,  if  equipped  with  the  best  up-to-date  knowledge 
about  physical  education,  could  assist  the  States  in  avoiding  great  waste  in- 
volved in  following  plans  not  justified  by  experience. 

What  the  Federal  Government  can  do  at  present  to  meet  this  well- 
r(!cognized  need  for  physical  education  depends  in  large  measure  upon  a  con- 
sideration of  its  financial  assets  and  liabilities.  But  anything  less  than 
national  leadership  means  a  halting,  uneven,  and  to  some  extent  wasteful,  de- 
velopment. Without  such  leadership  and  effort  a  progressive  process  of  physi- 
cal deterioration  is  likely  to  continue  to  seriously  impair  our  national  vitality. 
The  early  and  effective  extension  of  the  opportunity  for  adequate  physical 
education  to  all  the  children  of  the  country  would  seem  to  require  local.  State 
and  Federal  co-operation.  It  may  be  added  that  England,  France,  Japan,  Peru, 
and  a  number  of  other  countries,  haye  already  taken  steps  toward  the  estab- 
li'jhment  of  physical  education  on  a  nation-wide  basis. 


70 


The  Immigration  Situation 


Report  of  Sub-Committee 


FREDERICK  H.  GILLETT 

Chairman 


HENRY  P.  FAIRCHILD 

Staff  Assistant 


THE  IMMIGRATION  SITUATION 

The  volume  of  immigration  has  been  enormous,  coming  first  from  northwest 
Europe  but  latterly  from  southeast  Europe — The  Federal  law  provides  for  the 
exclusion  and  deportation  of  undesirables,  but  does  not  seek  to  control  numbers 
nor  to  supervise  immigrants  in  this  country — The  inadequacy  of  this  legislation 
calls  for  amendments — Needed  improvements  in  the  selective  tests  are:  (1) 
A  higher  physical  standard;  (2)  Complete  exclusion  of  mental  defectives;  (3) 
Detection  and  exclusion  of  criminals;  (4)  Inspection  as  near  the  source  as 
possible — For  some  years  past  public  opinion  has  grown  strongly  in  favor  of 
some  positive  control  of  numbers — Large  unassimilated  elements  threaten  dem- 
ocratic institutions — Immigration  should  be  so  restricted  as  to  guarantee  the 
maximum  rapidity  of  assimilation  and  prevent  danger  from  unassimilated  ele- 
ments— There  is  an  honest  difference  of  opinion  regarding  immigration,  based 
upon  the  different  aspect  which  it  presents  to  capital  and  labor — Our  policy  of 
control  should  secure  a  fair  and  reasonable  balance  between  these  two  opinions 
and  interests — Preference  should  be  given  to  immigrant  groups  with  national 
traits  and  standards  most  like  our  own — Machinery  should  be  established  for 
the  better  distribution  and  protection  of  foreigners — There  should  be  an  annual 
registration  of  aliens — Americanization  activities  should  be  amplified — Our 
naturalization  law  should  be  improved  to  provide  better  tests  of  assimilation 
and  to  remove  unnecessary  obstacles — There  should  be  no  coercion  or  penalties 
used  to  hasten  naturalization — Congressional  study  of  the  whole  question  of 
citizenship  is  needed — In  the  matter  of  political  agitation  a  distinction  between 
aliens  and  citizens  is  justified  but  should  be  accurate  and  humane — The  prin- 
ciple of  excluding  Oriental  races  is  sound,  but  in  applying  it  consideration 
should  be  taken  of  the  self-respect  of  the  nations — The  method  should  be  im- 
partial and  just — Our  national  duty  of  protecting  standards  of  living  and  of 
citizenship. 

IMMIGRANT  POPULATION 

Number.  tMi 

In  the  past  one  hundred  years  over  thirty-three  million  people  from  for- 
eign lands  have  come  as  immigrants  to  the  United  States.  In  1910  the  foreign- 
born  population  of  the  United  States  amounted  to  13,515,886  or  14.7  per  cent, 
of  the  entire  population.  Although  these  individuals  represented  practically 
every  foreign  country,  the  great  bulk  of  them  were  born  in  Europe.  Asiatics 
are  practically  excluded  by  our  laws  and  regulations,  and  few  immigrants  from 
Africa,  Australia,  and  South  America  seek  admission. 

Race. 

There  has  been  a  marked  shift  in  the  sources  of  immigration  from  north- 
western Europe  to  southern  and  eastern  Europe.  While  this  change  progressed 
r^idly,  it  had  been  in  operation  for  so  short  a  time  before  the  Census  of  1910 
that  practically  half  of  our  foreign-born  population  were  still  from  northwest- 
em  Europe  (18.5  per  cent,  being  from  Germany,  10  per  cent,  from  Ireland,  9.3 
per  cent,  from  the  Scandinavian  countries,  and  9  per  cent,  from  Great  Britain) . 
But  this  proportion  changed  rapidly  from  1910  to  1914,  during  which  the  im- 

73 


migrants  from  southern  and  eastern  Europe  were  69.8  per-  cent,  of  the  whole 
number  while  those  from  northwestern  Europe  were  only  17.6  per  cent.  This 
change  has  introduced  races  and  nationahties  differing  radically  from  those 
which  constituted  the  bulk  of  the  population  of  the  United  States  at  the  time 
of  the  Revolution,  and  of  the  immigration  stream  from  1776  to  1882. 

THE  PRESENT  LAW 

Selection. 

The  first  law  establishing  Federal  control  over  immigration  was  passed  in 
1882.  The  principle  adopted  was  the  admission  of  immigrants  on  the  basis  of 
selective  tests,  designed  to  exclude  those  who  for  physical,  moral,  intellectual, 
or  economic  reasons  were  likely  to  be  undesirable  members  of  our  population. 
These  tests  have  been  steadily  increased  and  strengthened,  culminating  in  the 
literacy  test  of  1917.  These  tests  are  applied  by  officials  of  the  Bureau  of  Im- 
migration at  the  ports  of  entry  in  this  country.  A  preliminary  sifting  at  the 
foreign  port  of  embarkation,  or  at  interior  centers,  is  conducted  by  the  steam- 
ship companies  to  avoid  the  heavy  penalties  imposed  upon  them  for  bringing 
inadmissible  aliens  who  should  have  been  detected  on  the  other  side.  This  ex- 
amination, however,  is  not  officially  recognized  as  bearing  on  the  admissibility 
of  the  immigrant.  The  immigration  law  also  contains  provision  for  .the  depor- 
tation, under  certain  limitations,  of  certain  classes  of  aliens  who  have  proved 
undesirable  after  admission. 

Inadequacy  of  Law. 

The  assumption  underlying  the  entire  law  is  that  a  thorough  system  of 
selection  will  adequately  protect  the  country  from  the  evils  of  immigration. 
Nowhere  in  the  law  is  there  any  recognition  of  danger  from  excessive  numbers 
even  of  high-grade  immigrants,  nor  any  suggestion  of  adapting  the  number  to 
'  our  business  needs  for  labor.  The  conditions  revealed  by  late  investigation  and 
the  war  have  convinced  the  majority  of  the  American  people  that  the  present 
law  affords  insufficient  protection  in  both  the  social  and  economic  fields,  and 
that  there  should  be  amendments. 

IMPROVEMENT  OF  SELECTIVE  TESTS 

Physical. 

The  physical  tests  now  applied  to  immigrants  are  not  sufficiently  positive, 
and  many  persons  of  poor  physique  are  admitted.  Much  would  be  gained  by  re- 
quiring a  physical  standard  approximating  that  of  the  army. 

Mental. 

Under  present  conditions  it  is  impossible  to  weed  out  all  of  the  mentally 
defective  immigrants.  These  constitute  a  peculiarly  serious  menace,  and  facili- 
ties for  inspection  should  be  increased  to  the  point  where  it  is  impossible  for  a 
feeble-minded  alien  to  secure  admission. 

Criminals.  ^ 

Many  persons  of  criminal  tendencies,  and  even  with  criminal  records,  are 
now  admitted.  Foreign  police  records  should  be  used,  so  far  as  practicable,  to 
detect  and  exclude  such  persons. 

74 


Foreign  Inspection. 

The  stricter  the  tests,  the  greater  the  need  of  inspection  as  near  the  immi- 
grant's home  as  possible.  Careful  study  should  be  given  to  practical  means  of 
conducting  a  preliminary  official  examination  of  immigrants  in  foreign  coun- 
tries. This  might  be  done  either  by  officials  of  the  Consular  Service  or  of  the 
Immigration  Service.  It  has  been  proposed,  as  a  matter  of  general  principle, 
that  no  immigrants-  should  be  permitted  to  embark  for  an  American  port  with- 
out an  authenticated  certificate  from  such  officers.  By  turning  inadmissible 
aliens  back  early  in  their  journey  great  hardship  would  be  avoided.  Also,  cer- 
tain types  of  information  could  be  secured  in  this  way  much  better  than  at 
present. 

THE  NEED  OF  CONTROL  OF  NUMBERS 

Demand  for  Restriction. 

There  are  strong  grounds  for  feeling  that  no  purely  selective  system,  how- 
ever carefully  worked  out,  can  provide  adequate  safeguards  for  American  insti- 
tutions and  standards  in  the  face  of  unrestrained  flow  of  foreign  immigration. 
For  the  past  thirty  years  or  so  there  has  been  a  noteworthy  growth  of  public 
opinion  in  favor  of  some  positive  Hmitation  and  control  of  the  numbers  of  immi- 
grants, in  addition  to  the  selective  tests.  This  opinion  has  been  expressed  in 
many  ways,  but  perhaps  never  more  clearly  than  in  the  demand  for  the  literary 
test.  This  measure  is  perfectly  defensible  as  a  selective  measure,  but  it  also 
exercises  a  distinct  restrictive  influence,  and  there  is  no  doubt  that  much  of  its 
support  rested  upon  a  desire  for  restriction  which,  at  the  time,  it  was  difficult 
to  secure  in  any  other  way. 

Need  of  Unity. 

The  safety  of  democratic  institutions  demands  unity  and  sympathy  on  im- 
portant principles  on  the  part  of  the  population.  The  spirit  of  democracy  can- 
not persist  if  large  elements  of  the  people  are  of  such  diverse  nationalities 
that  they  cannot  act  harmoniously,  however  they  may  differ  in  individual  char- 
acteristics. 

Immigration  to  the  United  States  should  be  so  restricted  in  quantity  as -to 
secure  the  following  results : 

Principles  of  Restriction. 

(a)  That  the  number  of  foreigners  in  the  country  at  any  one  time  should 
not  exceed  the  proportion  which  can  be  assimilated  with  maximum 
rapidity  under  existing  social  and  economic  conditions. 

(b)  That  the  unassimilated  foreign  elements  should  not  be  large  enough 
to  interfere  with  consistent  handling  of  public  problems  and  harmo- 
nious social  action. 

Magnitude  of  Problem. 

These  conditions  have  not  prevailed  for  many  years  past,  and  do  not  pre- 
vail at  the  present  time.  The  evils  of  immigration  are  cumulative,  and  we  have 
now  a  foreign-born  problem  of  such  magnitude  as  to  tax  our  assimilative  re- 
sources for  many  years  to  come,  particularly  in  the  face  of  the  unsettled  con- 
ditions which  have  followed  the  war. 

Conflict  of  Opinion. 

Immigration  is  one  of  those  questions  upon  which  public  opinion  is  almost 
certain  to  be  honestly  divided.    The  importance  of  the  foreign  labor  supply 

75 


under  our  present  organization  is  s6  great  that  those  whose  service  to  society 
consists  in  the  management  and  promotion  of  production  naturally  fear  disaster 
if  the  supply  is  curtailed.  On  the  other  hand,  the  competition  of  constant  acces- 
sions of  immigrant  labor  affects  the  labor  groups  already  in  the  country — 
whether  native  or  foreign — so  directly  and  unfavorably  that  they  naturally  see 
in  unlimited  immigration  the  greatest  menace  to  their  established  standard  of 
living  and  their  newly-achieved  position  of  advantage  in  industrial  adjust- 
ments. 

Basis  of  Solution. 

Our  permanent  policy  of  control  should  accordingly  be  designed  to  secure  a 
just  and  reasonable  balance  between  these  two  naturally  conflicting  interests. 
This  will  best  be  accomplished  if  the  terms  of  restriction  are  so  framed  as  to 
favor  immigrants,  who  are  efficient  workers,  whose  standards  are  similar  to 
our  own,  and  who  are  also  easily  assimilated,  and  to  discriminate  against  immi- 
grants, who  are  more  difficult  to  assimilate  and  whose  standards  of  living  are 
necessarily  lower  on  account  of  the  hard  living  conditions  at  home,  and  who 
for  the  same  reasons  are  less  efficient  workers  under  American  conditions. 

Percentage  Restriction. 

Of  the  various  plans  submitted  for  restricting  the  volume  of  immigration, 
one  widely  advocated  to  accomplish  the  above  results  is  to  limit  the  immigration 
of  any  ethnic  group  to  a  certain  percentage  of  the  members  of  that  group 
already  resident,  or  naturalized,  in  the  United  States.  If  the  percentage  is 
based  upon  those  naturalized  there  will  be  greater  likelihood  of  promoting 
speedy  assimilation  of  the  newcomers.* 

Administrative  Advantages. 

Finally,  it  is  obvious  that  a  limitation  of  numbers  is  requisite  for  the  im- 
provements in  selection  and  administration  recommended  above. 

PROTECTION  AND  SUPERVISION 

Need  and  Lack  of  Machinery. 

To  complete  our  machinery  for  handling  the  immigrant  problem,  justice  to 
the  foreigner  and  to  ourselves  demands  some  provision  for  the  guidance,  pro- 
tection, and  supervision  of  our  alien  population  until  they  have  arrived  at  such 
a  degree  of  assimilation  as  to  enable  them  to  take  care  of  themselves  and  to  re- 
spond to  the  demands  of  civic  duty,  on  equal  terms  with  the  natives.  So  far, 
the  Federal  government  has  done  almost  nothing  in  this  direction,  and  the 
efforts  of  private  agencies  have  proved  entirely  insufficient. 

Objects  of  Distribution. 

Some  Federal  agency  should  be  established  for  securing  better  distribu- 
tion of  our  foreign-born  population,  to  secure  a  two-fold  purpose : 

(a)  Immigrants  should  be  helped  to  those  sections  of  the  country,  particu- 
•    larly  the  agricultural  districts,  where  the  economic  services  they  are 

prepared  to  render  are  in.  most  demand." 

(b)  Immigrants  should  be  helped  to  settle  under  such  social  conditions 
as  shall  assure  them  the  fullest  benefits  of  American  opportunities, 
and  promote  their  rapid  assimilation,  which  would  more  than  offset 


♦A  provision  of  this  kind  is  Included  in  a  bill  (H.    R.    12320).    Introduced    in    Congress    by   Repre- 
sentative Albert  Johnson.  Chairman  of  the  Commltee   on    Immigration   and   Naturalization. 

76 


the  loss  of  those  national  contacts   and  familiar  associations   which 
they  now  find  in  their  localized  colonies. 

Registration. 

In  order  to  facilitate  government  supervision  and  assistance,  all  aliens 
should  be  required  to  register  annually  until  they  become  naturalized. 

Education. 

While  assimilation  is  much  more  than  an  educational  process,  yet  educa- 
tion is  essential  to  it,  and  the  widest  possible  facilities  should  be  provided  to 
assist  foreigners  in  securing  a  knowledge  of  the  English  language  and 
the  fundamentals  of  American  government  and  institutions.  Such  education 
should  be  compulsory  for  minor  aliens,  and  should  be  on  the  employer's  time  in 
the  case  of  those  legally  employed.  It  is  a  question  for  careful  study  whether 
compulsion  should  be  extended  to  adults. 

Americanization. 

The  Americanization  work  of  public  and  private  agencies  is  worthy  of 
support,  so  long  as  it  is  not  presented  as  a  substitute  for  restriction,  nor  is  so 
paternalistic  as  to  antagonize  the  forei<rner. 

Association. 

It  must  be  recognized,  however,  that  the  only  true  assimilation  must  come 
from  natural,  spontaneous,  friendly  association  between  foreigners  and  natives. 

NATURALIZATION 

Unified  Citizenship. 

The  goal  of  our  entire  immigration  policy  is  a  unified  nation.  This  implies 
a  minimum  number  of  members  of  the  population  who  are  subject  to  civic  limi- 
tations on  account  of  their  birth.  Immigration  conditions  can  be  regarded  as 
satisfactory  only  when  the  great  proportion  of  foreigners  pass  with  reasonable 
rapidity  into  the  ranks  of  citizens. 

Assimilation. 

It  must  be  recognized,  however,  that  it  is  not  the  mere  formal  fact  of  citi- 
zenship which  is  of  importance,  but  genuine  adoption  into  the  American  life. 
Assimilation  should  precede  naturalization.  The  American  must  have  a  will- 
ingness to  accept  the  foreigner,  but  most  of  the  transformation  must  be  on 
the  part  of  the  foreigner. 

Need  of  New  Naturalization  Law. 

A  satisfactory  naturalization  law  should  provide  tests  which  will  guarantee 
a  reasonable  degree  of  assimilation  before  citizenship  is  conferred.  Our  pres- 
ent law  fails  lamentably  in  this  particular.  The  established  tests  of  residence, 
witnesses,  oath,  etc.,  have  lost  practically  all  the  significance  they  had  when 
the  law  was  passed,  on  account  of  the  changed  social  conditions.  The  law  fur- 
nishes practically  no  assurance,  beyond  the  candidate's  own  assertion,  that  the 
alien  has  become  an  American  at  heart.  There  is  urgent  need  of  improvement 
in  this  particular. 

Removal  of  Obstacles. 

On  the  other  hand,  all  artificial  or  arbitrary  obstacles,  which  hinder  a 
genuinely  assimilated  immigrant  from  getting  citizenship,  should  be  removed. 

77 


Naturalization  courts  should  be  open  at  night.  Witnesses  should  be  allowed  to 
make  depositions  by  mail.* 

Married  Women. 

A  suggestion  worthy  of  consideration  proposes  independent  naturalization 
of  married  women  and  the  right  of  married  women  to  choose  citizenship. 

No  Coercion. 

All  proposals  to  penalize  aliens  for  failing  to  secure  citizenship  are  based 
on  a  wrong  principle.  The  foreigner  who  does  not  want  American  citizenship 
badly  enough  to  secure  it  as  soon  as  he  is  prepared,  will  not  make  a  valuable 
citizen,  and  efforts  to  coerce  him  will  foster  the  wrong  attitude  on  his  part 
before  and  after  naturalization. 

Foreign-born   Women. 

The  question  of  naturalization  of  foreign-born  women  is  of  great  import- 
ance in  view  of  the  imminence  of  woman  suffrage.  There  are  many  other  weak- 
nesses and  inconsistencies  in  our  naturalization  laws.  There  should  be  a  thor- 
ough-going Congressional  study  of  the  whole  question  of  citizenship  and 
naturalization.  ^  * 

THE  ANARCHIST  PROBLEM 

Curb  on  Aliens. 

In  order  to  preserve  its  democratic  institutions  the  United  States  must  al- 
low the  greatest  freedom  of  opinion  and  expression  to  its  citizens.  But  this 
does  not  imply  an  identical  attitude  toward  the  alien  members  of  the  popula- 
tion. Foreigners  whose  habits  of  thought  and  political  ideas  have  been  formed 
within  a  wholly  different  social  environment,  very  likely  a  repressive  auto- 
cratic, or  despotic  one,  are  not  qualified  within  a  short  time  after  their  arrival 
in  the  United  States  to  criticise  constructively  the  institutions  of  this  country. 
In  their  efforts  to  do  so  they  are  certain  to  spread  erroneous  doctrines,  par- 
ticularly among  the  great  masses  of  unassimilated  foreigners.  Foreigners  are 
not  entitled  to  full  liberty  of  expression  and  agitation  until  they  have  acquired 
sufficient  ability  in  understanding  and  interpreting  American  institutions  to  en- 
title them  to  citizenship,  and  until  they  have  displayed  enough  interest  in 
American  citizenship  to  secure  it  as  soon  as  possible. 

Deportation  Justified  if  Just. 

The  general  principle  of  excluding  and  deporting  aliens  of  the  anarchist 
type  is  therefore  sound.  The  greatest  care  should  be  exercised  in  the  conduct 
of  these  proceedings  to  avoid  injustice  or  unnecessary  hardship.  As  little  as  pos- 
sible should  be  left  to  the  police  officials  of  local  communities,  who  are  not 
likely  to  be  fully  familiar  with  the  law. 

ORIENTAL  IMMIGRATION 

Race  Differentiation. 

The  question  of  the  treatment  of  Asiatic  immigrants  is  peculiarly  delicate 
and  difficult.  The  general  principle  of  the  practical  exclusion  of  these  races  is 
sound.  No  democracy  can  afford  to  admit  large  groups  of  people  whose  racial 
or  national  characteristics  are  so  different  from  those  established  in  the  country 

*A  provision  of  this  kind  is  Included  In  a  bill  (H.    R.    12977),    introduced    in    Congress    by    Repre- 
sentative Albert  Johnson,  Chairman  of  the  Committee   on    Immlgrration. 

78 


as  inevitably  to  set  the  newcomers  off  into  socially  isolated  groups.  This  is  em- 
phatically true  of  Asiatic  races.  In  the  case  of  these  peoples  there  is  the  fur- 
ther complication  of  the  decidedly  low  standard  of  living  to  which  they  have 
necessarily  become  accustomed. 

In  the  interest  of  international  good- will,  and  in  deference  to  the  self-re- 
spect of  nations  with  an  ancient  and  high  civilization,  our  method  of  exclusion 
should  be  as  just  and  courteous  as  possible,  and  should  not  carry  any  implica- 
tion of  superiority  or  inferiority. 

SOME    CONCLUSIONS 

The  Land  and  the  People. 

Two  things,  and  two  only,  have  made  the  United  States  what  is  is — the  land 
and  the  people.  The  necessary  foundation  for  our  democracy  is  abundant  and 
rich  land,  and  a  very  favorable  man-land  ratio.  But  only  men  of  a  certain  type 
could  have  built  this  great  nation,  however  favorable  the  foundation. 

Influence  of  Immigration. 

Immigration  is  related  to  both  of  these  fundamental  factors.  The  disap- 
pearance of  free  land  and  the  growth  of  congested  districts  have  given 
an  entirely  new  significance  to  present-day  immigration.  At  the  same  time  the 
newer  immigration  is  profoundly  altering  the  racial  constitution  of  our  people. 
These  facts  call  for  thoughtful  consideration. 

Standard  of   Living. 

The  standard  of  living  and  the  standard  of  citizenship  of  a  nation  are  its 
most  precious  possessions,  and  the  preservation  and  elevation  of  those  stand- 
ards is  the  first  duty  of  a  democratic  government.  On  account  of  the  favorable 
conditions  of  the  past,  the  people  of  the  United  States  enjoy  exceptionally 
high  standards.  No  sentimental  considerations  or  class  interests  should  be  al- 
lowed to  threaten  those  standards. 

Land  Hunger. 

The  present  immigration  movement  is  the  modern  aspect  of  the  world-old 
■  struggle  for  land.  The  underlying  motive  throughout  all  its  phases  is  the  de- 
sire of  the  crowded  peoples  of  older  countries  to  share  the  advantages  of  our 
unique  land  situation.  No  other  factors  should  be  allowed  to  obscure  this  truth. 
It  is  a  perfectly  natural  desire  on  their  part,  and  calls  for  an  intelligent  and 
firm  treatment  on  our  part. 

Nothing  strikes  closer  to  the  very  roots  of  democracy  than  immigration. 


79 


Law  and  Order  and  the 
Administration  of  Justice 

Report  of  Sub-Committee 


ALBERT  J.  BEVERIDGE 

Chairman 


LAW  AND  ORDER  AND  THE  ADMINISTRATION 

OF  JUSTICE 

It  is  the  purpose  of  this  report  to  review  briefly  proposed  laws  and  ad- 
ministrative measures  having  a  bearing  on  those  acts  which  tend  directly  to 
undermine  the  authority  and  power  qf  government  and  which,  in  the  period 
following  the  close  of  the  war,  have  especially  excited  public  interest. 

These  laws  and   measures  naturally  fall  into  three  general  classes: 

I.  The  peace  time  sedition  bills 

II.  Alien  deportation 

III.  Criminal    syndicalism    statutoL'. 

1.     PEACE   TIME    SEDITION    BILLS 

The   recent   introduction  of   numerous    so-called    "Peace    Time    Sedition 
Bills''^  into  the  United  States  Congress  is  due  to  ^  fear  of  the  inadequacy 
of  existing  law  to  protect  the  security  and  well-being  of  this  country  from 
the  activities  of  radical   agitators.     That  "treason"  is  punishable  by  the  Fed- 
eral government  is  generally  recognized.     But   the   constitutional   limitation 
as  to  what  constitutes  treason  is  sharp  and  explicit^  and  the  statutory  defini- 
tion thereof  follows  with  exactness  the  language  of  the  Constitution.^    It  has 
been  held,  under  this  statute,  that  in  order  that  there  shall  be  the  "levying 
of  war"  which  is  essential  to  treason,  there  must  be  "an  assemblage  of  per- 
sons for  the  purpose  of  effecting  by  force  a  treasonable  purpose.     Enlistment 
of  men  to  serve  against  the  government    is    not    sufficient;    although    when 
war  is  levied  all  those  who  perform  any   part,    however   minute,    and    who 
are  actually  leagued  in  the  general  conspiracy,  are  traitors."*     So  also  it  has 
been  said  that  the  sudden  "assembling  of  men,  in  order,  by  force,  to  prevent 
the  execution  of  a  law  in  a  particular  instance,  and  then  to  disperse,  without 
any  intention  of  continuing  together  oi'  reassembling  for  defeating  the  law 
generally  and  in  all  cases,  is  not  a  levj^ing  of  war   such   as   constitutes   trea- 
son,"5  although  a  general  armed  resistance,   with   a   view   to   defeating   the 
efficacy  of  or  nullifying  an  act  of  Congress,  is  treason.^    The  early  decisions 
which  so  properly  limited  the  scope  of  treason  have  given  rise  to  the  mis- 
conception in  some  quarters  that  acts  less   serious,   but   nevertheless   subver- 
sive of  the  federal  authority,  are  dispunishable.     Section  4'   and   more   par- 
ticularly Section  6*^  of  the  Federal  Criminal   Code  should  dispel  this  misap- 
prehension.    The  broad  provisions  of  Section   ST   and   Section   332i°   of   the 
same  Code,  when  taken  as  supplementary    to    the    first    two    sections    men- 
tioned, seem  to  bring  within  the  purview  of  the  federal  courts  all  conduct 
which  up  to  this  time  has  been  considered  criminal.     By  Section  4  the  inci- 
tation  to  or  assisting  in  any  rebellion  or  insurrection  against  the  authority 
of  the  United  States  or  the  laws  thereof  is  made  punishable.    And  in  order 
that  there  should  be  an  "insurrection"  within  the  meaning  of  this  statute,  "it 
is  not  necessary  that  there  should  be  bloodshed ;  it  is  not  necessary  that  its 
dimensions  should  be  so  portentous  as  to  insure  probable   success.""     Sec- 
tion 6,  sometimes  referred  to  as  the  seditions  conspiracy  section,  makes  pun- 
ishable the  conspiracy  "to  overthrow,  put  down  .    .    .the  government  of  the 
United  States  ...  or  by  force  to  prevent,   hinder,   or  delay  the   execution 


of  any  law  of  the  United  States."  Conflicting  views  as  to  the  meaning  of 
this  statute  are  ably  expressed  in  the  case  of  Baldwin  v.  Franks/^  by  Chief 
Justice  White  for  the  majority,  Mr.  Justice  Holmes  and  Mr.  Justice  Field  for 
the  minority.  The  majority  of  the  court  held  that  the  force  used  or  intend- 
ed to  be  used  must  be  brought  to  resist  some  positive  assertion  of  authority 
by  the  government,  while  Mr.  Justice  Field  held  that  the  concerted  action 
nullifying  a  pix)tection  given  by  a  Federal  statute  lay  within  the  purview  of 
the  law.  Whatever  may  have  been  the  law  before  the  passage  of  the  origi- 
nal version  of  this  act^^  as  to  the  necessity  for  waiting  until  the  resistance 
had  consummated  in  an  overt  act,"  it  is  clear  that  since  that  time  we  may 
regard  as  criminal  "not  only  combinations  to  overthrow  the  government,  but 
conspiracies  or  mutual  agreements,  whether  by  few  or  many,  whether  public 
or  private,  forcibly  to  resist  or  even  to  delay,  the  execution  of  any  law.^^ 
And  the  statute  has  been  said  to  obviate  specifically  the  necessity  of  any 
attempt  to  consummate  a  treasonable  act,  in  order  that  the  conspirators 
may  be  held  to  account.^"  Some  act  is  still  necessary  for  a  conviction  of  sedi- 
tious conspiracy,  but  the  act  may  be  a  nominal  one,  such  as  making  out  -^  list 
of  names^^  or  mailing  a  letter.^^ 

Section  37  of  the  Criminal  Code  is  supplementary  to  Sections  IV  and 
VI.  It,  in  effect,  states  the  common  law  of  conspiracy,  making  it  applicable 
to  Federal  crimes.  If  two  or  more  persons  conspire  to  commit  any  offense 
against  the  United  States,  and  any  act  in  furtherance  of  this  conspiracy  is 
done,  each  of  the  parties  is  punishable  under  this  act.  These  broad  provisions 
have  been  a  prolific  source  of  prosecution,  and  have  been  widely  applied  to 
seditious  undertakings.  Under  this  section  the  general  scheme  or  conspiracy 
may  be  complete  even  though  its  details  are  not  planned,  and  will  be  action- 
able if  any  overt  act  to  effect  its  object  has  been  committed. ^^  It  is  not 
necessary  that  the  conspiracy  accomplish  its  illegal  purpose,^"  nor  is  it  essen- 
tial that  the  overt  act  be  .itself  a  crime. ^^  It  has  been  held,  furthermore, 
that  the  counseling  of  persons  to  commit  a  crime  against  the  Federal  gov- 
ernment may  be  a  crime,  though  the  counsel  is  of  no  effect  and  the  crime 
is  not  committed.-^  It  is  to  be  noted,  however,  that  Section  37  **is  applicable 
only  to  conspirators,  and  therefore  does  not  cover  the  case  of  one,  acting 
alone,  who  induces  another"  to  commit  an  offense.-^  Even  this  last  situation, 
relatively  unimportant  as  it  may  be,  is  covered  in  a  large  measure  by  Section 
332,  under  whose  provisions  "whoever  directly  commits  any  act  constituting 
an  offense  defined  in  any  law  of  the  United  States,  or  aids,  abets,  counsels, 
commands,  induces,  or  procures  its  commission,  is  a  principal."  The  con- 
struction placed  upon  this  language  is  that  the  counseling  must  have  been 
successful;  i.  e.,  that  the  crime  must  have  been  committed  by  some  one,^* 
but  that  once  the  crime  has  been  committed  all  who  aided  in  or  counselled 
its  commission  are  guilty  as  principals.-^ 

It  is  difficult  to  ascertain  what  seditious  acts  or  combinations  looking 
towards  seditious  acts  are  outside  the  scope  of  the  above  statutes.  The  only 
situation  dispunishable  is  that  in  which  one  man,  acting  entirely  alone,  coun- 
sels the  commission  of  a  Federal  crime,  and  no  crime  of  any  sort  is  com- 
mitted as  a  result  of  such  counsel.  It  would  seem  that  the  present  legisla- 
tion gives  to  the  Federal  Government  the  power  to  protect  itself  from  these 
combinations  and  acts  which  constitute  a  menace  to  its  institutions.  If  any 
further  legislation  is  needed  to  protect  against  incitement  to  acts  which  are 

84 


injurious  to  the  government,  such  necessity  would  appear  to  be  fully  met  by 
a  statute  corresponding  to  laws  now  in  force  in  England  and  in  most  of  the 
states,  making  criminal  the  solicitation  to  commit  acts  which  are  themselves 
crimes.  Further  legislation  making  criminal  mere  membership  in  societies^" 
— however  pernicious  these  societies  may  be  deemed  to  be — would  seem  to 
transcend  the  bounds  of  conspiracy  and  solicitation  hitherto  recognized  by  the 
genius  of  the  common  law;  and  to  make  actionable  situations  which  have  not  ^ 
heretofore  been  considered  to  present'^any  clear  or  present  danger  of  sub- 
stantive evils."  The  policy  of  the  common  law  and  the  genei-al  policy  in  crim- 
inal legislation  which  has  made  acts  themselves  directly  injurious  to  the  state 
the  test  of  criminality  would  seem  to  indicate  the  unwisdom  of  any  attempt 
to  make  criminal  mere  opinions,  or  association  with  others,  or  membership  in 
organizations  not  themselves  criminal  and  which  do  not  involve  either  the 
commission  of  or  solicitation  to  commit  acts  not  themselves  criminal. 

NOTES. 

'Nelson  Bill;  Sterling  Bill;  Graham  Bill. 

^U.  S.  Constitution,  Article  III,  Sec.  3  "Treason  against  the  United  States  shall  con- 
sist only  in  levying  war  against  them,  or  in  adhering  to  their  enemies,  giving  them  aid 
and  comfort." 

'35  Stat.  1088;  U.  S.  Comp.  Stat.  10165;  Section  I  Criminal  Code  enacted  by  Act  March 
4,  1909. 

'Ex  parte  Bollman   (1807)   4  Cranch  75,  125. 

'Charge  to  Grand  Jury,  Fugitive  Slave  Law  (C.  C.  1851)  Fed.  Cas.  No.  18,262;  Charge 
to  Grand  Jury,  Treason  (D.  C.  1863)   Fed.  Cas    No.  18,274. 

'U.  S.  V.  Mitchell  (C.  C.  1795)  Fed.  Cas.  No.  15,788,  2  Ball.  348;  Case  of  Fries  (C.  C. 
1799)  Fed.  Cas.  No.  5,126. 

'Section  IV,  Criminal  Code.  "Whoever  incites,  sets  on  foot,  assists,  or  engages  in  any 
rebellion  or  insurrection  against  the  authority  of  the  United  States  or  the  laws  thereof,  or 
gives  aid  or  comfort  thereto,  shall  be  imprisoned  not  more  than  ten  years,  or  fined  not 
more  than  ten  thousand  dollars,  or  both;  and  shall,  moreover,  be  incapable  of  holding  any 
office  under  the  United  States." 

"Section  VI,  Criminal  Code.  "If  two  or  more  persons  in  any  State  or  Territory,  or 
in  any  place  subject  to  the  jurisdiction  of  the  United.  States,  conspire  to  overthrow,  put 
down,  or  to  destroy  by  force  the  Government  of  the  United  States,  or  to  levy  war  against 
them,  or  to  oppose  by  force  the  authority  thereof,  or  by  force  to  prevent,  hinder,  or  delay 
the  execution  of  any  law  of  the  United  States,  or  by  force  to  seize,  take,  or  possess  any  prop- 
erty of  the  United  States  contrary  to  the  authority  thereof,  they  shall  each  be  fined  not  more 
than  five  thousand  dollars,  or  imprisoned  not  more  than  six  years,  or  both." 

^Section  37,  Criminal  Code.  "If  two  or  more  persons  conspire  either  to  commit  any  of- 
fense against  the  United  States,  or  to  defraud  the  United  States  in  any  manner  or  for 
any  purpose,  and  one  or  more  of  such  parties  do  any  act  to  effect  the  object  of  the  conspiracy, 
each  of  the  parties  to  such  conspiracy  shall  be  fined  not  more  than  ten  thousand  dollars,  or 
imprisoned  not  more  than  two  years,  or  both." 

"Section  332,  Criminal  Code.  "Whoever  directly  commits  any  act  constituting  an  of- 
fense defined  in  any  law  of  the  United  States,  or  aids,  abets,  counsels,  commands,  induces, 
or  procures  commission  is  a  principal." 

"In  re  Charge  to  Grand  Jury— 62  Fed.  828,  830. 

"Baldwin  v.  Franks  (1886)  120  U.  S.  678. 

"Acts  1861,  c.  64;  12  Stat.  326. 

"Cf.  U.  S.  V.  Hanway  (C.  C.  1851)   Fed.  Cas.  No.  15,299. 

^'Charge  to  Grand  Jury  (1861)  Fed.  Cas.  No.  18,277. 

'"Charge  to  Grand  Jury   (1861)    Fed.  Cas.  No.  18,272. 

"Phipps  V.  U.  S.   (1918)    (C.  C.  A.)   251  Fed.  879. 

"Testimony  of  ex-Assistant  U.  S.  Atty.  Gen.,  Alfred  Bettman,  before  the  Committee 
on  Rules  of  the  House  of  Representatives,  January  23,  1920. 

"U.  S.  V.  Baker  (D.  C.)  243  F.  741;  U.  S.  v.  McHugh  (D.  C.)  253  F.  224;  U.  S.  v. 
Bryant  (B.  C.)  245  F.  682 

'"Goldman  v.  U.  S.  245",  U.  S.  474. 

^'Billingsley  v.  U.  S.  249  F.  331,  affirming  242  F.  330. 

''U.  S.  V.  Galleanni,  245  F.  977 

""See  U.  S.  V.  Prieth,  251  F.  946,  954. 

"See  U.  S.  V.  Mills   (1833)   32  U.  S.  138,  142;  U.  S.  v.  Sugar,  243  Fed.  423,  427. 

''U.  S.  V.  Snyder  (C.  C.  1882)   14  Fed.  554,  Richardson  v.  U.  S.,  181  Fed.  1. 

k"See  the  Nelson  Bill,  S.  3448,  Sec.  II. 
"Cf.  Holmes,  J.,  in  Schenck  v.  U.  S.   (1919)  249  U.  S.  47,  52;  39  Sup.  Ct.  247. 


II.     ALIEN  DEPORTATION 

A  law  which  has  once  been  placed  on  the  Statute  books  serves  to  some 
extent  as  a  model  for  future  legislation,  even  after  the  events  surrounding  the 
passage  of  the  original  statutes  have  been  forgotten.  Where  existing  laws  have 
their  prototype  in  the  past,  it  is,  therefore,  sometimes  desirable  to  state  their 
origin. 

The  first  law  authorizing  the  deportation  from  the  United  States  of  aliens 
resident  there  was  passed  in  1798.^  Grave  circumstances  and  turbulent  condi- 
tions led  to  its  enactment.  France  and  England,  in  the  war  begun  between 
them  in  1793,  emulated  one  another  in  the  violation  of  American  neutrality. 
Washington's  famous  proclamation  of  neutrality,  which  was  designed  to  pro- 
hibit in  America  certain  enterprises  manifestly  favoring  England  at  the  ex- 
pense of  France,  culminated  in  the  historic  impertinence  of  the  French  Min- 
ister, Genet,  who  threatened  to  appeal  from  the  government  to  the  people  of 
the  United  States,  in  behalf  of  French  concessions.  After  Genet's  recall,  the 
treaty  negotiated  with  England  by  Chief  Justice  Jay  served-  to  arouse  the 
fierce  jealousy  of  France  still  further  and  spoliations  of  American  commerce 
were  committed  with  as  little  restraint  as  if  actual  war  existed.  Pinckney,  the 
American  ambassador  appointed  to  succeed  Monroe,  was  refused  recognition 
by  France,  and  shortly  thereafter  Talleyrand's  infamous  attempt  to  bribe 
America's  special  conciliation  envoys,  Pinckney,  Gerry  and  Marshall,  was  dis- 
closed in  the  notorious  X.  Y.  Z.  correspondence.  So  great  was  the  general  in- 
dignation that  the  Democrats,  who  had  hitherto  been  moved  chiefly  by  animosity 
for  England,  united  with  the  Federalists  in  support  of  President  Adams.  The 
Federalists,  elated  at  the  unprecedented  unanimity  of  purpose,  proceeded 
vigorously  with  preparations  for  a  war  with  France,  and  determined  to  take 
decisive  steps  to  rid  the  country  of  foreign  agitators,  French  particularly,  but 
also  English  and  Irish.  With  this  purpose  in  view  the  Alien  Act  was  passed 
July  6,  1798,  and  the  Sedition  Act-  was  submitted  to  and  received  the  approval 
of  the  President  ten  days  later.  The  alien  law  allowed  the  President  to  compel 
the  departure  of  aliens  whom  he  judged  dangerous  to  the  peace  and  safety  of 
the  United  States,  or  suspected,  on  reasonable  grounds  of  treasonable  or  secret 
machinations  against  our  government  The  sedition  law  punished  false,  scan- 
dalous, and  malicious  writings  against  the  government,  either  House  of  Con- 
gress or  the  President,  if  published  with  intent  to  defame  any  of  them,  or  to 
incite  against  them  the  hatred  of  the  people,  or  to  stir  up  sedition  or  to  excite 
resistance  to  law  or  to  aid  any  hostile  designs  of  any  foreign  nation  against  the 
United  States.  These  laws  were  passed  in  a  time  of  acute  stress,  at  the  high 
tide  of  the  immediate  crisis,^  yet  the  storm  of  indignation  raised  by  them  was 
fatal  to  the  party  which  originated  them,  and  provoked  from  state  legislatures 
condemnatory  resolutions  almost  revolutionary  in  their  import.*  Thomas  Jeffer- 
son, the  third  President  of  the  United  States,  said,  "For  my  own  part,  I  consider 
these  laws  as  merely  an  experiment  on  the  American  mind,  to  see  how  it  will 
bear  an  avowed  violation  of  the  Constitution."^  James  Madison,  the  fourth 
President,  was  equally  explicit:  "Could  a  power  be  given  in  terms  less  par- 
ticular, and  less  precise?  .  .  .  It  is  rightly  affirmed,  therefore,  that  the  act 
unites  legislative  and  judicial  powers  to  those  of  the  executive  .  .  .  that  this 
union  of  power  subverts  the  principle  of  free  government.""  Even  Alexander 
Hamilton,  the  leader  of  the  wrecked  Federal  Party,   appearing  as  counsel   in 

86 


People  V.  Croswell,^  some  years  later,  showed  a  desire  strictly  to  limit  the  appli- 
cation of  the  laws.  The  constitutionality  of  the  laws  of  1798  was  now  passed 
upon  by  the  Supreme  Court,  since,  by  their  own  terms,  they  became  obsolete  in 
two  years.  Legislation  of  today  is  framed  in  terms  very  similar  to  those  con- 
sidered so  odious  by  our  forefathers. 

Not  for  almost  a  century  did  Congress  venture  upon  future  legislation  of 
a  like  nature.  In  1892  an  Act  was  passed  to  prohibit  the  coming  of  Chinese 
persons  into  the  United  States.^  One  section  of  this  Act-*  made  liable  to  depor- 
tation those  Chinese  laborers  already  within  the  limits  of  the  United  States  who 
failed  to  secure  a  certificate  of  residence  from  the  commissioner  of  internal 
revenue.  Although  the  motivation  for  this  legislation  was  economic  rather  than 
political,  the  legal  maxims  formulated  in  the  one  field  have  been  applied  to  the 
other  with  a  consistency  which  transcends  the  facts.  The  constitutionality  of 
the  Act  of  1892  was  upheld  in  Fong  Yue  Ting  v.  United  States.^"  In  the  Chi- 
nese Exclusion  Case"  it  was  said :  "That  the  government  of  the  United  States, 
through  the  action  of  the  legislative  department,  can  exclude  aliens  from  its 
territory  is  a  proposition  which  we  do  not  think  open  to  controversy.  .  .  .  It  's 
a  part  of  its  independence."^-  In  the  Fong  Yue  Ting  Case  Mr.  Justice  Gray, 
speaking  for  the  majority  of  the  court  said :  "The  right  of  a  nation  to  expel  or 
deport  foreigners,  who  have  not  been  naturalized  or  taken  any  steps  towards  be- 
coming citizens  of  the  country,  rests  upon  the  same  grounds,  and  is  as  absolute 
and  unqualified  as  the  right  to  prohibit  and  prevent  their  entrance  into  the  coun- 
try."'^ Justice  Brewer,  Justice  Field  and  Chief  Justice  Fuller  dissented  vigor- 
ously from  this  statement.  Chief  Justice  Fuller  called  proceedings  under  this 
act  "in  effect,  a  legislative  sentence  of  banishment,  and,  as  such  absolutely 
void.^*  Said  Justice  Brewer:  "Whatever  may  be  true  as  to  exclusion,  I  deny 
that  there  is  any  arbitrary  and  unrestrained  power  to  banish  residents,  even 
resident  aliens  .  .  .  The  Constitution  has  not  extraterritorial  effect,  and  those 
who  have  not  come  lawfully  within  our  territory  cannot  claim  any  protection 
from  its  provisions.  .  .  .  But  the  constitution  has  potency  everywhere  within 
the  limits  of  our  territory."^^  It  was  Justice  Brewer's  contention  that  the  sum- 
mary deportation  section  disregarded  the  constitutional  guarantees  of  liberty 
and  imposed  punishment  without  due  powers  of  law.^"  He  repeated  the  obser- 
vations of  Mr.  Justice  Bradley,  speaking  for  the  court  in  a  previous  case:" 
"Illegitimate  and  unconstitutional  practices  get  their  first  footing  in  that  way, 
namely,  by  silent  approaches  and  slight  deviations  from  legal  modes  of  pro- 
cedure." "Is  it  possible,"  asked  Justice  Field,  "that  Congress  can,  at  its 
pleasure,  in  disregard  of  the  guarantees  of  the  Constitution,  expel  at  any  time 
the  Irish,  French,  German  and  English  who  may  have  taken  up  their  resi- 
dence here  on  the  invitation  of  the  government  while  we  are  at  peace  with  the 
countries  from  which  they  came,  simply  on  the  ground  that  they  have  not  been 
naturalized?"^^  The  most  impassioned  advocate  of  the  rights  of  immigrants 
could  hardly  speak  with  more  heat  than  Mr.  Justice  Field.  "In  view  of  this 
enactment  of  the  highest  legislative  body  of  the  foremost  Christian  nation, 
may  not  the  thoughtful  Chinese  disciple  of  Confucius  fairly  ask,  why  do  they 
send  missionaries  here?""  And  it  is  well  to  remember  that  it  was  Mr.  Justice 
Field  who  delivered  the  opinion  in  the  Chinese  Exclusion  Case,-"  and  had  no 
doubts  as  to  the  validity  of  the  powers  therein  affirmed. 

In  spite  of  the  strong  dissents  quoted  above,  subsequent  decisions  have  lit- 
tle doubt  that  the  power  to  expel  aliens  is  vested  in  the  political  departments 

87 


of  the  government,  and  is  to  be  administered  by  executive  authority,  except  so 
far  as  the  judicial  department  has  been  authorized  or  is  required  by  the  con- 
stitution to  intervene."  That  an  alien  is  not  deprived  absolutely  of  appeal  to 
the  courts  seems  v^^ell  established.  Thus  aliens  held  in  custody  by  immigrant 
inspectors  for  deportation  under  the  contract  labor  laws,  and  by  virtue  of  a 
vi^arrant  from  the  secretary  of  the  treasury,  which  does  not  contain  the  names 
of  the-  prisoners,  or  any  names  idem  sonans,  are  held  without  authority,  and 
may  be  released  by  habeas  corpus.-^  In  general,  the  decisions  of  the  adminis- 
trative officers  are  final,  and  "the  denial  of  a  fair  hearing  is  the  only  founda- 
tion for  any  jurisdiction  in  a  court  to  interfere  on  habeas  corpus."-^  The  courts 
have  gone  to  dubious  lengths  in  approving  as  "fair"  many  arbitrary  methods  of 
procedure.  In  one  notable  case  the  court  held  that  it  had  no  power  to  revive 
in  behalf  of  an  alien  seeking  to  enter  the  findings  of  a  port  collector,  even  where 
it  appeared  that  the  final  hearing  before  the  collector  had  been  postponed,  and 
the  petitioner  had  been  placed  upon  a  ship  for  deportation  before  the  hearing 
took  place,  and  where  it  was  found  further  that  one  of  the  witnesses  who  was 
to  be  produced  was  "intentionally  or  otherwise"  frightened  from  testifying  by 
one  of  the  Chinese  inspectors.^*  In  another  case  in  which  the  deportee  was  ar- 
rested by  an  officer  "whose  word  was  his  warrant,"  and  was  forced  by  threats 
to  testify  against  herself,  and  was  not  allowed  to  see  or  communicate  with  an 
attorney  or  anyone  else,  the  court,  while  saying  that  the  person  attacked  was 
"at  the  mercy  of  the  inspector,  who  is  accuser,  arresting  officer,  prosecutor, 
judge  and  jailer,"  nevertheless  felt  "impelled  to  dismiss  the  petition.  .  .  .  altho 
with  reluctance."-^  A  further  amazing  grant  of  power  was  held  valid  in  Ekin 
V.  U.  S.,  where  it  was  said:  "The  statute  does  not  require  inspectors  to  take 
any  testimony  at  all,  and  allows  them  to  decide  on  their  own  inspection  and 
examination  the  question  to  the  right  of  any  alien  immigrant  to  land.^® 

The  majority  of  the  Supreme  Court,  speaking  through  Justice  Holmes, 
held  that  the  decision  of  an  administrative  office  ordering  the  deportation  of  a 
person  of  Chinese  parentage  was  not  judicially  reviewable,  even  where  the  peti- 
tioner alleged  that  he  had  been  born  within  the  United  States  and  was  therefore 
a  citizen ;"  altho  in  a  previous  case  it  was  said  with  regard  to  a  petitioner :  "It 
is  conceded  that,  if  he  is  a  citizen  of  the  United  States,  the  act  of  Congress, 
known  as  the  Chinese  Exclusion  Acts,  prohibiting  persons  of  the  Chinese  race, 
and  especially  Chinese  laborers,  from  coming  into  the  United  States,  do  not  and 
cannot  apply  to  him."-^ 

Decisions  of  imigration  officials,  held  not  receivable  by  the  courts,  have 
extended  greatly  the  classes  brought  within  the  scope  of  various  immigration 
and  deportation  statutes.-^  Thus  in  United  States  ex  rel.  Canfora  v.  Williams,^" 
the  court  was  called  upon  to  exercise  its  jurisdiction  in  behalf  of  the  relator 
who  was  sixty  years  old  and  had  come  to  the  United  States  sixteen  years  earlier. 
The  year  before  the  case  was  presented  to  the  court  he  had  had  an  accident 
as  a  result  of  which  his  leg  had  been  amputated  and  he  had  had  to  expend  about 
$1,500  for  medical  services.  Upon  his  return  from  a  visit  to  his  native  land, 
he  was  detained  by  the  immigration  inspector  on  the  ground  that  he  was  liable 
to  become  a  public  charge.  His  children,  some  of  whom  were  native  born  of- 
fered to  guarantee  his  maintenance.  The  court  held  that  the  relator  had  never 
lost  his  status  of  alienage,  and  that  therefore  the  decision  of  the  immigration 
official  could  not  be  reviewed  by  the  court.  Judge  Holt,  who  delivered  the 
opinion,  said :   "I  consider  that,  if  this  order  of  deportation  is  carried  out,  it  will 

88 


be  an  act  of  cruel  injustice.  .  .  .  But  I  am  compelled  to  dismiss  this  writ."^' 
A  more  striking  example  of  elasticity  of  interpretation  is  indicated  in  United 
States  V.  Wusterbarth.^-  That  was  a  proceeding  instituted  for  the  cancellation 
of  a  certificate  of  citizenship,  on  the  ground  that  it  was  fraudulently  procured. 
Wusterbarth  had  been  naturalized  in  1882  under  a  statute  requiring  an  appli- 
cant for  admission  to  citizenship  to  abjure  and  renounce  all  allegiance  to  any 
foreign  sovereignty.  Thirty-five  years  later,  in  1917,  the  defendant  gave  vent 
to  pro-German  remarks.  It  was  held  that  these  facts  were  proof  that  the  certifi- 
cate of  citizenship  had  been  procured  by  fraud,  and  warranted  its  cancellation. 

These  precedents  for  the  gradual  extension  of  administrative  authority 
into  fields  thought  by  many  to  require  judicial  treatment,  and  these  sanctions  for 
the  almost  arbitrary  use  of  that  power,  have  recently  been  applied  to  a  new 
series  of  cases.  The  alien  law  of  1798  has  been  substantially  reenacted, 
altho  certain  provisions,  notably  the  one  as  to  the  duration  of  the  act,  restrict- 
ing the  scope  of  the  earlier  statute  have  been  omitted  from  those  now  in  fprce. 
Administrative  and  judicial  decisions  which  have  given  an  arbitrary  force  to 
statutes  seemingly  precise,  are  now  available  for  application  to  statutes  similar 
to  those  which  were  said  by  our  forefathers  to  invite  the  abuse  of  authority. 

The  Immigration  Act  of  March  3,  1891,^^  excluded  from  admission  into 
the  United  States,  besides  Chinese  laborers,  all  idiots,  insane  persons,  pau- 
pers, persons  suffering  from  a  dangerous  contagious  disease,  persons  who 
had  been  convicted  of  a  felony  or  other  infamous  crime,  polygamists,  and 
also  persons  coming  in  presumptively  as  contract  laborers.  The  act  provided 
that  any  alien  entering  the  United  States  in  violation  of  law  might  be  re- 
turned within  one  year  thereafter.^*  The  Act  of  March  3,  1903,'^  added  to 
the  above  classes  of  aliens  "anarchists  or  persons  who  believe  in  or  advocate 
the  overthrow  of  the  United  States  or  of  all  government  or  of  all  forms  of 
law  or  the  assassination  of  public  officials."  The  act  contained  a  further  de- 
tailed section^^  which  provided  that  "no  person  who  disbelieved  or  who  is 
opposed  to  all  organized  government,  or  who  is  a  member  of  or  affiliated  with 
any  organization  entertaining  and  teaching  such  disbelief  in  or  opposition  to 
all  organized  government,  or  who  advocates  or  teaches  the  duty,  necessity, 
and  propriety  of  the  unlawful  assaulting  or  killing  of  any  officer  or  officers 
either  of  specific  individuals  or  of  officers  generally,  of  the  Government  of  the 
United  States,  or  of  any  other  organized  government,  because  of  his  or  their 
official  character,  shall  be  permitted  to  enter  the  United  States."  The  Act 
provided  for  the  deportation  of  any  alien  found  in  the  United  States  in  viola- 
tion of  law  within  three  years  after  landing  or  entry  therein.^^  The  Immi- 
gration Act  of  Feb.  19,  1907,^^  left  these  provisions  substantially  unchanged; 
as  did  the  amendment  to  this  act^''  passed  in  1910  and  relating  chiefly  to  the 
importation  of  prostitutes. 

The  two  laws  now  in  force  bearing  on  this  question  were  passed  Feb.  5, 
1917,**'  and  October  16,  1918."  In  the  act  of  1917,  alien  anarchists  are  ex- 
cluded and  are  defined  as  "persons  who  believe  in  or  advocate  the  overthrow 
by  force  or  violence  of  the  government  of  the  United  States,  or  of  all  forms  of 
law,  or  who  disbelieve  in  or  are  opposed  to  organized  government,  or  who  ad- 
vocate or  teach  the  unlawful  destruction  of  property;  persons  who  are  mem- 
bers of  or  aflfiliated  with  any  organization  entertaining  and  teaching  disbelief 
in  or  opposition  to  organized  government,  or  who  advocate  or  teach  the  duty, 
necessity,  or  propriety  of  the  unlawful  assaulting  or  killing  of  any  officer  or 

89 


officers,  either  of  specific  individuals  or  of  officers  generally,  or  of  the  govern- 
ment of  the  United  States  or  any  other  organized  government  because  of  his 
or  their  official  character,  or  who  advocate  or  teach  the  unlawful  destruction 
of  property."  Under  this  act  aliens  who  entered  in  violation  of  law  may  be 
deported  within  five  years  after  entry, "2  except  that  as  to  anarchists  any  time 
limit  is  specifically  removed.  The  1918  amendment  to  this  act"  consists  large- 
ly of  a  series  of  definitions  of  those  persons  considered  anarchists,  and  of 
those  societies  membership  in  which  renders  one  liable  to  deportation.  The 
time  limit  within  which  after  entry  an  alien  falling  within  those  classes  may 
be  deported  is  aga'in  specifically  removed.  Neither  the  1917  Act  nor  the  1918 
Amendment  is  emei\gency  legislation.  Both  acts  remain  in  force  until  re- 
pealed. 

It  would  seem  that  the  following  classes  of  aliens  are  deportable  under 
the  statutes  of  1917  and  1918:  (1)  Those  who  use  force  or  violence  to  accom- 
phsh  political  ends.  (2)  Those  who  advocate  the  use  of  force.  (3)  Those 
who  believe  in  the  use  of  force.  (4)  Those  who  disbelieve  in  organized  gov- 
ernment and  are  in  favor  of  peaceful  steps  to  realize  their  desires.  (5)  Those 
who  disbelieve  in  organized  governments,  but  advocate  no  measures  of  any 
kind.  (6)  Those  who  are  members  of  societies  which  could  be  placed  in  any 
of  the  first  five  classes. 

Although  it  has  been  held  that  the  process  of  deportation  is  not  a  punish- 
ment for  a  crime,  and  that  therefore  the  provision  of  the  Constitution  secur- 
ing the  right  of  trial  by  jury  has  no  applicaition,''*  it  is  well  to  remember  Jus- 
tice Brewer's  positive  dissent:  "it  need,s  no  citation  to  support  the  proposi- 
tion that  deportation  is  a  punishment.*^  And  it  is  well  to  remember  that 
some  of  the  offenses  rendering  an  alien  liable  to  deportation  have  long  been 
recognized  as  crimes.  Two  questions  are  raised  by  this  comparison  and  sim- 
ilarity ;  first  is  the  system  whixjh  makes  possible  an  arbitrary  exercise  of  power 
unrestrained  by  judicial  review  desirable  for  application  to  offenses  of  a 
semi-penal  nature;  second  are  the  offenses  making  one  liable  to  deportation, 
within  the  scope  of  our  criminal  law;  and  if  not,  is  our  criminal  law  suffi- 
ciently inclusive,  or  are  the  deportation  statutes  too  wide  in  their  scope,  or 
is  there  some  factor  which  makes  dangerous  to  the  welfare  of  the  nation  acts 
committed  by  aliens  which  are  not  dangerous  when  committed  by  citizens? 

The  files  of  the  Immigration  Department  are,  as  yet,  the  chief  depositaries 
of  procedure  under  the  new  acts.  A  report  based  upon  these  files*"  shows,  as 
was  to  be  expected,  that  the  precedents  established  in  the  Chinese  deportation 
cases  as  to  what  constituted  due  process  of  law  in  deportation  proceedings  are 
being  followed.  Deportees  have  been  held  in  custody  more  than  a  year  without 
access  to  attorneys,*^  and  there  have  been  deported  without  being  able  to  secure 
any  legal  ad/ice.*^  Moreover,  officers  of  the  Department  of  Justice  have  been 
officially  instructed  by  the  Department  to  search  the  residences  of  prospective 
deportees  without  search  warrants,*''  and  to  stimulate  aliens  to  activities  which 
render  them  liable  to  deportation.^^  Methods  of  apprehension  and  of  trial  seem 
equally  unrestrained. 

When  considering  the  possible  substitutes  for  some  of  the  extensions  of 
the  deportation  acts  it  should  be  remembered  that  an  alien  owes  an  allegiance 
to  the  United  States,  which  continues  during  the  p«5riod  of  his  residence,  and 
that  he  is  equally  amenable  with  citizens  for  any  infraction  of  the  laws  of  the 
United  States  or  the  state  in  which  he  resides."     Not  ^nly  has  it  been  found 

90 


desirable  to  provide  for  the  deportation  of  aliens  falling  within  tfie  first  two 
of  the  prescribed  classes  enumerated  above,  but  there  is  no  doubt  that  they,  as 
well  as  citizens  advocating  the  use  of  or  actually  using  force  for  the  accomplish- 
ment of  political  purposes  can  be  dealt  with  under  FederaP^  and  State^^  laws. 
The  third,  and  more  particularly  the  fourth  and  fifth  classes  of  aliens  liable  to 
deportation  are  clearly  beyond  the  scope  of  even  the  most  stringent  criminal 
law.  The  courts  were  not  slow  to  recognize  the  scope  of  the  doctrine,  and  one 
of  the  earliest  cases  decided  under  the  statute  of  1903  extended  it  to  its  limits. 
In  Turner  v.  Williams^*  the  court  held  that  Congress  had  the  power  to  authorize 
the  deportation  of  alien  anarchists  even  **if  the  word  'anarchists'  should  be 
interpreted  as  including  aliens  Whose  anarchistic  views  are  professed  as  those 
of  political  philosophers  innocent  of  evil  intent."  The  court  disapproved  of  the 
appellant's  contention  that  "conceding  that  Congress  has  the  power  to  shut  out 
any  alien,  the  power  Nevertheless  does  not  extend  to  some  aliens,  and  that 
if  the  act  includes  all  alien  anarchists,  it  is  unconstitutional,  because  some  an- 
archists are  merely  political  philosophers,  whose  teachings  are  beneficial  rather 
than  otherwise.""  This  case  may  be  said  to  give  judicial  construction  to  the 
third,  fourth  and  fifth  proscribed  classes. 

With  regard  to  members  of  societies  we  have  to  deal  with  two  types :  those 
who  are  passive  members  of  a  society,  and  those  who  participate  in  its  activities. 
We  may  find  these  two  types  of  members  bothVhere  the  society  itself  is  passive 
and  where  the  society  itself  is  active.  Where  the  society  uses  or  advocates  force 
and  the  individual  participates  in  the  activities  of  the  society,  the  individual 
would  not  only  be  liable  to  deportation,  but  would  be  liable  criminally  both  as 
an  individual  and  as  one  of  a  group  of  cooperating  individuals.^^  Members  of  a 
society  which  believes  in,  but  does  not  advocate  force,  or  which  disbelieves  in  or- 
ganized government  but  advocates  merely  peaceful  methods  to  bring  about 
changes,  or  advocates  no  methods  at  all,  would  not  be  liable  criminally  whether 
the  members  do  or  do  not  participate  in  the  activities  of  the  society.  The  last 
class  consists  of  now  participating  members  of  societies,  which  societies  them- 
selves use  or  advocate  the  use  of  force. 

Two  recent  decisions  of  the  Department  of  Labor  deal  with  some  phases 
of  the  above  classifications.  In  re  Engle  bert  Presi"  it  was  alleged  and  proved 
that  the  alien  was  a  member  of  the  Communist  party  of  America,  and  that  the 
question  was  squarely  raised  as  to  whether  that  organization  was  one  of  those, 
membership  in  which  makes  an  alien  liable  to  deportation.  The  manifesto  of 
the  party  was  quoted  as  follows:  "The proletarian  class  struggle  is  essentially 
a  political  struggle.  .  .  .  The  objective  is  the  conquest  by  the  proletariat  of  the 
power  of  the  state.  .  .  .  The  parliamentarianism  of  the  Communist  Party  per- 
forms a  service  in  mobilizing  the  proletariat  against  capitalism,  emphasizing 
the  political  character  of  the  class  struggle.  .  .  .  The  Communist  Party  shall 
participate  in  mass  strikes,  not  only  to  achieve  the  immediate  purpose  of  the 
strike,  but  to  develop  the  revolutionary  implications  of  tne  mass  strike." 
Fased  upon  these  and  similar  excerpts,  Secretary  Wilson  held:  "The  only 
onclusion  is  that  the  Communist  Party  of  America  is  an  organization  that 
believes  in,  teaches,  and  advocates  the  overthrow  by  force  or  violence  of  the 
government  of  the  United  States.  ...  It  is  mandatory  upon  him  (the  Sec.  of 
Labor)  to  take  into  custody  aliens  who  are  members  of  this  organization  and 
deport  them  in  the  manner  provided  for  in  the  immigration  act  of  Feb.  5, 
1917." 

91 


This  position  was  qualified  to  some  extent  by  Acting  Secretary  of  Labor 
Post  in  the  Truss  Case.'*  He  says :  "I  shall  assume  .  .  .  that  Congress  intended 
the  Act  of  October  16,  1918,  to  be  considered  reasonably  with  reference  to  the 
individual  knowledge  and  intent  of  persons  drawn  innocently  into  unlawful 
membership." 

The  landmarks  of  judicial  and  administrative  decisions  have  thus  estab- 
lished that  the  powers  to  deport  aliens  rests  upon  the  same  unqualified  sov- 
ereign rights  as  the  power  to  exclude  them;  that  Congress  .may  invest  the 
executive  branch  of  the  government  with  both  the  judicial  and  administrative 
functions  involved  in  the  process  of  deportation;  that,  except  in  very  rare  in- 
stances, the  judicial  department  of  the  government  have  no  power  to  inter- 
vene in  behalf  of  a  deportee  even  when  the  judicial  department  recognizes 
that  the  executive  has  been  arbitrary  and  abusive;  that  citizenship  may  un- 
der some  circumstances  be  revoked  in  order  to  bring  the  deportee  within  the 
jurisdiction  of  the  executive  branch;  and  that  the  decision  of  Congress  as  to 
what  constitutes  a  deportable  offense  is  not  subject  to  review  by  the  courts. 
It  cannot  be  doubted  that  every  government  has  the  power  to  exclude  and 
deport  those  aliens  who  constitute  a  real  menace  to  its  peaceful  existence. 
And  it  must  be  recognized  that  in  jnany  instances  of  exclusion  and  in  some 
cases  of  deportation  it  is  not  practical  to  require  a  judicial  review.  But  in 
view  of  the  large  numbers  of  people  affected  by  the  immigration  acts,  and  in 
view  of  the  constant  extension  of  the  category  of  deportable  offenses,  and  of 
the  vigorous  malpractice  of  the  Departments  of  Justice  and  of  Labor,  it  is 
urged  that  intervention  of  the  courts  be  made  more  possible  and  requisite. 
The  decisions  of  the  courts  have  been  to  the  effect  that  they  could  not  inter-, 
vene  in  the  absence  of  constitutional  or  congressional  authorization.  But 
there  is  no  disability  in  Congress  to  authorize  judicial  review  and  the  situ- 
ation seems  to  demand  that  this  be  dene.  It  is  urged  further  that  Congress 
consider  the  wide  safeguards  already  provided  by  the  Federal  and  States 
criminal  law.  It  should  be  recognized  that  even  the  most  recent  extensions 
of  our  criminal  law,  which  have  disregarded  completely  the  common  law  lim- 
itations placed  upon  conspiracy  and  solicitation,  do  not  take  cognizance  of 
many  of  those  situations  which  make  an  alien  amenable  to  deportation. 

NOTES. 

'1  Statute  at  Large  570,  Section  1.  Reads  in  part  as  follows:  "It  shall  be  lawful  for 
the  President  of  the  United  States  at  any  time  during  the  continuance  of  this  act,  to  order 
all  such  aliens  as  he  shall  judge  dangerous  to  the  peace  and  safety  of  the  United  States, 
or  shall  have  reasonable  grounds  to  suspect  are  concerned  in  any  treasonable  or  secret 
machinations  against  the  government  thereof  to  deport  out  of  the  territory  of  the  United 
States,  within  such  time  as  shall  be  expressed  in  such  order." 

^1  Statute  at  Large  596,  Section  1.  "If  any  persons  shall  unlawfully  combine  or  con- 
spire together,  with  intent  to  oppose  any  measure  or  measures  of  the  government  of  the 
United  States,  which  are  or  shall  be  directed  by  proper  authority,  or  to  impede  the  opera- 
tions of  any  law  of  «ie  United  States,  or  to  intimidate  or  prevent  any  person  holding  a 
place  in  or  under  the  government  of  the  United  States,  from  undertaking,  performing  or 
executing  his  trust  or  duty;  and  if  any  person  or  persons,  with  intent  as  aforesaid,  shall 
counsel,  advise  or  attempt  to  procure,  any  insurrection,  unlawful  assembly,  or  combination, 
whether  such  conspiracy  threatening,  counsel,  advise  or  attempt  shall  have  the  proposed 
effect  or  not,  he  or  they  shall  be  deemed  guilty  of  a  high  misdemeanor." 

Section  2.  "If  any  person  shall  write,  print,  utter  or  publish,  or  shall  cause  to  pro- 
cure to  be  written,  printed,  uttered  or  published,  or  shall  knowingly  and  willingly  assist 
or  aid  in  writing,  printing,  uttering  or  publishing  any  false,  scandalous  and  malicious 
writing  or  writings  against  the  government  of  the"  United  States,  or  either  house  of  the 
Congress  of  the  United  States,  or  the  President  of  the  United  States,  with  intent  to  de- 
fame the  said  government,  or  either  house  of  the  said  Congress,  or  the  said  President,  or 
to   bring  them,  or  either  of  them,  into  contempt  or  disrepute,  or  to  excite  against  them, 

92 


or  either  or  any  of  them,  the  hatred  of  the  good  people  of  the  United  States,  or  to  stir  up 
sedition  within  the  United  States,  or  to  excite  any  unlawful  combinations  therein,  for 
opposing  or  resisting  any  law  of  the  United  States,  or  any  act  of  the  President  of  the 
United  States,  done  in  pursuance  of  any  such  law,  or  of  the  powers  in  him  vested  by  the 
constitution  of  the  United  States,  or  to  resist,  oppose,  or  defend  any  such  law  or  act,  or 
to  aid,  encourage  or  abet  any  hostile  designs  of  any  foreign  nation  against  the  United 
States,  then  people  of  such  government,  then  such  person,  being  thereof  convicted." 

^1  Statute  at   Large,   Section   6.     Limits  the  continuance  of  the  Alien  act  to  two  years 
from  its  passing. 

1  Statute  at  Large  596,  Section  4.     Limits  the  continuance  of  the  Sedition  Act  to  March 
3,  1981. 

*The  Virginia  Resolutions  of  Dec.  21,  1798.     Resolutions  of  Kentucky  Legislature,  Nov. 
10,  1798,     Contra,   Delaware  Resolution  of  Feb.  1,  1799.     State  of  Rhode  Island  and  Prov- 
idence  Plantations   Resolutions,   February,   1799. 
^The  Virginia  Report  of  1799-1800;  page  XIIL 

"Madison's  Speech  before  the  Virginia  Assembly  in  behalf  of  the  Resolution  of  Dec.  21, 
1798. 

'3  Johns.  Cas.  (N.  Y.)  337  (1804). 
*27  Stat,  at  Large  25. 
"27  Stat,  at  Large,  Sec.  6. 
"149  U.  S.  698. 

"Chae  Chan  Ping  v  United  States,  130  U.  S.  581. 
"130  U.  S.  581,  603." 
"149  U.  S.  698,  707. 
"149  U.  S.  698,  763. 
^=149  U.  S.  698,  738. 
"149  U.  S.  698,  733. 

"Boyd  V    United   States,   116   U.   S.   616,  635. 
^*149  U.  S.  698,  750. 
"149  U.  S.  698,  744. 
^"Lupra — Footnote  11. 

"United  States  v.  Lee  Hiren   (1902),  118  Fed.  442;  U.  S.  v.  Wong  Kin  Ark.,  169  U.  S. 
649. 

"U.  S    V.  Amor,  68  Fed.  885. 

^See  In  re  Jem  Yuen  188  Fed.  350,  353;  Ex  parte  Lung  Foot,  174  Fed.  70;  Chin  Yow 
V.  U.  S.  208,  U.  S.  8. 

"^United  States  v.  Gin  Fung,  100  Fed.  389,  reversing  89  Fed.  153. 
^In  re  Lea  et  al.  126  Fed.  231   (1903). 

The  petitioner  in  this  case  was  accused  of  being  a  prostitute,  and  as  such  liable 
to  deportation. 
^"142  U.  S    651,  663. 
"United  States  v.  Ju  Toy,  198  U.  S.  253. 

But  see— Gee  Fook  Sing  v.  United  States,  49  Fed.  146,  148. 
Where  the  status  of  citizenship  is  a  question  of  law  rather  than  of  fact,  the  court 
will  review  the  order  of  a  commissioner.     Gonzalez  v.  Williams,  192  U.  S.  1.     See  also — 
In  re  Lea  et  al,  supra  footnote  25. 

""United  States  v.  Wong  Kim  Ark,  169  U.  S.  649,  653. 
""See  32  Stat    1213. 
="•186  Fed.  354. 
"186  Fed.  354,  356. 
'^249  Fed,  908   (1918). 
*'26  Stat.  1084. 
"26  Stat.  1084,  Sec.  11. 
'"32  Stat.  1213. 
'"32  Stat.  1213,  Sec,  38. 
"32  Stat.  1213,  Sec.  21 
=^34  Stat.  897. 
'"36  Stat.  263. 
**39  Stat.  874. 

"40  Stat.  1012.    Reads  in  part  as  follows: 

Section  1.  "Aliens  who  are  anarchists;  aliens  who  believe  in  or  advocate  the  over- 
throw by  force  or  violence  of  the  Government  of  the  United  States  or  of  all  forms  of  law; 
aliens  who  disbelieve  in  or  are  opposed  to  all  organized  government;  aliens  who  advocate 
or  teach  the  assassination  of  public  officials;  aliens  who  are  members  of  or  are  affiliated  with 
any  organization  that  entertains  a  belief  in,  teaches,  or  advocates  the  overthrow  by  force 
or  violence  of  the  Government  of  the  United  States  or  of  all  forms  of  law,  or  that  enter- 
tains or  teaches  disbelief  in  or  opposition  to  all  organized  government,  or  that  advocates 
the  duty,  necessity  or  propriety  of  the  unlawful  assaulting  or  killing  of  any  officer  or  officers, 
either  of  specific  individuals  or  of  officers  generally,  of  the  Government  of  the  United 
States,  or  of  any  other  organized  government,  because  of  his  or  their  official  character, 
or  that  advocates  or  teaches  the  unlawful  destruction  of  property  shall  be  excluded  from 
admission  into  the  United  States. 

Section  2.  "Any  alien  who,  at  any  time  after  entering  the  United  States,  is  found  to 
have  been  at  the  time  of  entry,  or  to  have  become  thereafter,  a  member  of  any  one  of  the 

93 


classes  of  aliens  enumerated  in  section  one  of  this  list,  shall,  upon  the  warrant  of  the  Sec- 
retary of  Labor,  be  taken  into  custody  and  deported  in  the  manner  provided  in  the  Im- 
migration Act." 

*^39  Stat.  874,  Sec.  19. 

"Supra-footnote  41.  -^     ■,         ,-,r.-,c,^ 

^'Fong  Yue  Ting  v.  United  States— supra  footnote  10.  Choy  You  v.  Backus  (1918), 
223  Fed.  487. 

^'Supra-footnOte  16.  ,       xt        xr    i 

**Report  on  American  Deportation  and  Exclusion  Laws,  submitted  to  the  New  York. 
Bureau  of  Legal  Advice,  Jan.-  15,  1919.     Reprinted  by  National  Civil  Liberties  Bureau. 

"Report  on  American  Deportation  and  Exclusion  Laws  at  page  7. 

**Report,  etc.,  at  page  13. 

"Except  from  instructions  sent  by  the  Department  of  Justice  to  the  local  officers  at 
Boston  (reported  in  the  New  Republic,  April  28,  1920).  "I  have  made  mention  above 
that  the  meeting  places  and  residences  of  the  members  should  be  searched.  I  leave  it  en- 
tirely to  your  discretion  as  to  the  method  by  which  you  should  gain  access  to  such  places. 
If,  due  to  the  local  conditions  in  your  territory,  you  find  that  it  is  absolutely  necessary 
for  you  to  obtain  a  search  warrant  for  such  premises,  you  should  communicate  with  the 
local  authorities  a  few  Tiours  before  the  time  for  the  arrests  is  set  and  request  a  warrant 
to  search  the  premises." 

For  the  constitutional  provision  as  to  search  warrants  see:  Amendments  to  U.  S. 
Const    Act.  IV. 

"•Department  of  Justice  Instructions,  Dec.  27,  1919.  "If  possible  you  (the  District  At- 
torney) should  arrange  with  your  under  cover  informants,  to  have  meetings  of  the  Com- 
munist party  and  the  Communist  Labor  Party  held  on  the  night  set.  I  have  been  informed 
by  some  of  the  bureau  offices  that  such  arrangements  will  be  made.  This,  of  course,  will 
facilitate  the  making  of  arrests."  ^     ,.  ,  xt    o 

"Barrington  v.  Missouri  (1907),  205  U.  S.  483;  27  Sup.  Act.  582;  Carlisle  v.  U.  S. 
(1872),  16  Wall  147;  Kempe  v.  Kennedy   (1809),  5  Cranch  173. 

"^See  section  or  report  on  Federal  Crimes. 

"See  section  of  report  on  State  Criminal  Syndicalism  Laws— particularly  the  first  para- 
graph. 

"194  U.  S.  279. 

"Turner  v.  Williams — supra  footnote  54,  at  page  293. 

■^Supra-footnotes  52  and  53. 

"Monthly  Labor  Review,  Vol.  X,  No.  3,  page  218,  published  by  Bureau  of  Labor  Sta- 
tistics, U.  S.  Dept.  of  Labor. 

"^Reported  in  "The  Survey"  of  April  24,  1920,  by  F.  F.  Kane,  ex— U.  S.  Attorney  for 
Eastern  District  of  Pennsylvania. 

""•It  has  been  estimated  that  as  a  result  of  the  January  raids,  3,289  warrants  were  is- 
sued; 2,709  were  served;  900  cases  were  dismissed;  390  deportations  were  ordered,  but  have 
not  all  been  carried  into  effect. 

*"66th  Congress,  2nd  Sess.,  H.  R.,  Rep.  No.  542,  page  9. 


III.     CRIMINAL  SYNDICALISM  STATUTES 

The  original  law  of  the  American  states  has  in  the  past  known  how  to 
deal  with  incitement  to  unlawful  acts.  Thus  the  common  law  crime  of  con- 
spiracy is  incorporated  in  criminal  codes  generally.^  Unlawful  assembly  is 
everywhere  proscribed. ^  Attempt  at  crime  is  both  at  common  law  and  by 
statute  a  substantive  crime  ;^  and  at  common  law  solicitation  to  crime  was 
punishable.*  The  courts  are  correct  in  holding  that  solicitation  does  not  fall 
within  the  statutory  definition  of  attempt  ;5  but  this  does  not  warrant  the 
conclusion  that,  since  solicitation  is  not  specifically  adverted  to  in  the  codes,*^ 
it  is  dispunishable  under  them.  Even  at  common  law  solicitation  was  only  in- 
dependently indictable  if  in  itself  it  involved  a  breach  of  the  peace  or  if  its 
object  was  interference  with  justice.^  And  such  solicitation  clearly  falls 
within  the  code  provisions  relating  to  public  nuisances.^ 

Yet  sixteen  states  have  found  these  broad  provisions  against  the  incite- 
ment to  crime  inadequate  to  cope  with  the  I.  W.  W.  The  legislatures  of  these 
states  within  the  past  two  years  have  passed  acts®  against  "criminal  syndical- 
ism."^" This  term  is  typically  defined^^  as:  "The  doctrine  which  advocates 
crime,  sabotage  (.  .  .  meaning  malicious  damage  to  the  property  of  an  em- 
ployer by  an  employe)   ...  as  a  means  of  accomplishing  industrial   or  po- 

94 


litical  ends."^2  gy  these  acts  it  is  made  a  felony  to  advocate,  justify,  or 
suggest  the  propriety  of  "criminal  syndicalism"  by  word  or  writing;  or  vol- 
untarily to  particij)ate  in  the  assembly  or  association  of  two  or  more  people 
to  advocate  "criminal  syndicalism";  and  it  is  a  gross  misdemeanor  as  owner 
or  superintendent  of  a  building,  knowingly  to  permit  its  use  for  such  assem- 
bly; with  twenty-five  years'  imprisonment  as  the  maximum  penalty.  Eighteen 
states  have  laws  punishing  "sabotage"'^  as  a  substantive  crime:  the  "crim- 
inal syndicalism"  laws  thus  definitely  deal,  not  with  the  destruction  of  prop- 
erty, but  only  with  the  incitement  thereto. 

In  so  far  as  these  laws  operate  to  make  conspiracy,  unlawful  assembly, 
and  solicitation  "endangering  the  public  peace"  felonies  instead  of  misde- 
meanors, they  add  little  to  the  substance  of  our  criminal  law.  But  by 
the  liberal  use  of  the  unscientific  term  "criminal  syndicalism"  the  legislatures 
have  prevented  themselves  from  seeing  that  they  were  in  fact  dealing  with  con- 
spiracy and  solicitation.  In  their  desire  to  make  these  activities  punishable 
at  a  point  where  our  criminal  jurisprudence  will  not  usually  take  cognizance 
of  therti,  the  legislatures  have  departed  seriously  from  the  spirit  of  our  laws 
and  institutions.  The  provisions  whereby  anyone  is  a  felon  who  has  in  his 
possession  printed  matter  which  suggests  the  doctrine  that  economic  or  po- 
litical ends  be  brought  about  by  sabotage;^*  or  who  voluntarily  participates  by 
his  presence,  aid,  or  instigation  in  an  assembly  where  these  doctrines  are 
advocated; ^5  qj.  ^y^q  openly  or  at  all  attempts  to  justify  these  doctrines  with 
the  intent  to  suggest  "criminal  syndicalism;^® — such  provisions  carry  one 
back  sharply  to  the  day  when  it  was  high  treason  to  "wish,  will  or  desire 
.  .  .  harm  to  the  King's  most  royal  person,"^^  and  when  it  was  an  offense 
calling  for  deportation  to  be  a  member  of  a  labor  union.^^ 

The  construction  put  upon  the  Espionage  Act,  with  its  cognate  provision 
punishing  "whoever  shall  wilfully  advocate,  teach,  defend  or  suggest"*^  the 
wrongful  acts  enumerated,  gives  us  an  indication  of  the  interpretation  which 
the  courts  will  place  upon  the  "criminal  syndicalism"  laws.-*'  Accepting  in  the 
one  instance  as  in  the  other  the  test  that  the  circumstances  and  nature  of  the 
words  or  acts  to  be  punished  must  be  such  as  to  create  a  clear  and  present  dan- 
ger that  they  will  bring  about  the  substantive  evils  which  the  legislatures  have 
a  right  to  prevent,^!  we  may  nevertheless  expect  the  courts  to  overstep  such 
limits  in  many  instances.- 

NOTES 

'N.  Y.  Penal  Law  (Consol.  Laws  c.  39.  Laws  1909  c.  88)  §  580;  Minn.  Gen.  Stat.,  1913  § 
8595;  Wash.  Rem.  Code,  1915,  §  2382;  N.  Y.  Penal  Law  §  582;  Minn.  Gen.  Stat.,  1913  §  8596; 
Okla.  Rev.  Laws,  1910  §  3764. 

=N.  Y.  Penal  Law  §  2092;  Wash.  Rem.  Code,  1915,  §  2550. 

'N.  P.  Penal  Law  §  2.    See  State  v.  Taylor    (1906)  47  Ore.  455,  460,  84  Pac.  82. 

^Commonwealth  v.  Flagg  (1883)  135  Mass.  545;  see  United  States  v.  Galleanni  (D.  C. 
1917)  245  Fed.  977. 

'Ex  parte  Floyd  (1908)  7  Cal.  App.  588,  95  Pac.  175;  State  v.  Lampe  (1915)  131 
Minn.  65,  154  N.  W.  737;  State  v.  Butler  (1894)  8  Wash.  194,  35  Pac.  1093;  but  see  State 
V.  George    (1914)    79  Wash.  262,  264,   140  Pac.  337. 

*Minn.  Gen.  Stat.,  1913  §  8466;  see  State  v.  Shaw  (1888)  39  Minn.  153,  39  N.  W.  305. 

'Wharton,  Criminal  Law  (11th  ed.)  §  218. 

Teople  V.  Most  (1902)  171  N.  Y.  423,  64  N.  E.  175.  Cf.  Lord's  Oregon  Laws,  1909 
§  2087;  State  v.  Nease  (1905)  46  Ore.  433,  80  Pac.  897.  N.  Y.  Penal  Law  §  160.  Penal 
Law  §  43,  supra.     People  v.  Nesin   (1917)    179  App.  Div.  869,  167  N.  Y.  Supp.  49. 

"Alaska,  Laws  1919,  c.  6;  California,  Laws  1919,  c.  188,  constitutionality  affirmed  in 
Ex  parte  McDermott  (Cal.  1919)  183  Pac.  437;  Hawaii,  Laws  '1919,  act  186;  Idaho,  Laws 
1917,  c.  145;  lowS,  Laws  1919,  c.  382;  Michigan,  Laws  1919,  no.  255;  Minnesota,  Laws 
1917,  c  215;  Montana,  Laws  1918,  special  session,  c.  7;  Nebraska,  Laws  1919,  c.  261;  N^v- 

95 


ada,  Laws  1919,  c.  22;  Oklahoma,  Laws  1919,  c.  70;  Oregon,  Laws  1919,  c.  12;  South  Dakota, 
Laws  1918,  special  session,  c.  38;  Utah,  Laws  1919,  c.  127;  Washington,  Laws  1919,  c. 
174;  Wyoming,  Laws  1919,  c.  76;  cf.  Australia,  Unlawful  Associations  Act,  No.  41  of  1916,  as 
<<mended  by  No.  14.  of  1917. 

"Oregon,  Laws  1919,  c.  12  §  5;  California,  Laws  1919,  c.  188  §  4. 

"Brissenden,  The  L  W.  W.   (1919)  272,  274. 

"Minnesota,  Laws  1917,  c.  215  §  1.  Oregon  Laws  1919,  c.  12  §  1.  California  Laws  1919, 
c.  188  §  1. 

''State  V.  Moilen  (1918)  140  Minn.  112,  167  N.  W.  345. 

"South  Dakota  Laws,  1918    (special  session)  c.  38  §  2. 

''Idaho,  Laws  1917  c.  145;  Montana,  Laws  1918  (special  session)  c.  7  §  4;  and  other 
states. 

"Oregon,  Laws  1919,  c.  12  §  3 ;  Oklahoma,  Laws  1919,  c.  70 ;  and  other  states. 

"26  Hen.  VIII  (1534)  c.  13. 

"The  Conviction  of  the  Dorchester  Labourers,  The  (London)  Times,  March  20,  1834. 
The  indictment  was  framed  on  37  Geo.  Ill  (1797)  c.  123,  against  seditious  and  illegal  con- 
spiracies. 

"(1917)  40  Stat.  217,  219  as  amended  (1918)   40  Stat.  553. 

""Abrams  v.  United  States  (1919)  40  Sup.Ct.  17.  See  Chafee,  Freedom  of  Speech  in  War 
Time,  32  Harvard  Law  Rev.  932. 

';Per  Holmes,  J.  in  Schenck  v.  United  States   (1919)   249  U.  S.  47,  52,  39  Sup.  Ct.  247. 

^State  V.  Moilen,  supra,  foot-note  13. 


Postal  Service 


Report  of  Sub-Committee 


GEORGE  B.  LOCKWOOD 

Chairman 


POSTAL  SERVICE 

The  deficiencies  of  the  postal  service,  under  the  administration  of  Post- 
master General  Burleson,  are  so  numerous  and  so  obvious  that  an  extended 
investigation  or  exposition  of  the  situation  would  be  superfluous.  It  is  within 
the  personal  knowledge  of  everybody  that  for  the  first  time  in  the  history  of 
the  United  States  government  the  postal  service  has  become  demoralized,  and 
that  it  is  no  longer  a  dependable  agency  of  communication. 

Postmaster  General  Burleson,  being  an  advocate  of  government  owner- 
ship, has  undertaken  to  demonstrate  that  he  could  operate  the  postal  service 
at  a  profit  to  the  government.  In  an  effort  to  create  an  appearance  of  profit, 
he  has  sacrificed  the  efficiency  of  the  service  through  false  economies,  and  has 
demoralized  the  morale  of  the  service  through  his  resistance  to  the  just  de- 
mands of  employees  for  compensation  consistent  with  that  prevailing  in  other 
employment.  A  Republican  Congress  has  legislated  for  betterment  of  condi- 
tions surrounding  postal  employees  only  against  the  resistance  of  the  Post- 
master General  and  the  attitude  of  the  department  has  been  such  that  postal 
employees  are  almost  unanimously  opposed  to  the  administration  and  may  be 
expected  to  support  the  opposition  ticket.  General  reference  to  the  unfair  labor 
conditions  prevailing  in  the  postal  department  may  with  propriety  be  considered 
as  a  part  of  the  party's  declaration  upon  postal  reform. 

Abuses  complained  of  in  the  postal  service  are:  delay  in  the  transmis- 
sion of  first-class  mail  to  such  an  extent  that. the  efficiency  of  business  estab- 
lishments which  largely  use  the  mails  has  seriously  been  interfered  with ;  even 
greater  delay  in  the  handling  of  second-class  mail,  although  ncfW  subjected 
to  far  heavier  postage  charges  than  heretofore;  abandonment  of  the  tube 
system  in  some  of  the  larger  centers  of  population,  a  step  questionable  on 
the  grounds  of  economy  as  well  as  efficiency;  failure  to  attempt  delivery  of 
mail  in  cases  where  there  is  any  technical  deficiency  in  the  address,  where 
under  former  administrations  a  serious  effort  has  been  made  to  deliver  every 
piece  of  mail  entrusted  to  the  Department  before  returning  to  the  sender  or 
forwarding  to  the  dead  letter  office;  violation  of  the  civil  service  law  in  ap- 
pointments of  many  postmasters  and  mail  carriers,  criticized  in  a  re- 
port of  the  former  Civil  Service  Commission,  resulting  in  its  dismissal  by 
President  Wilson ;  brutal  disregard  of  the  rights  and  interests  of  employees  of 
the  postal  service,  whether  organized  or  unorganized,  and  a  false  economy  in 
compensation  which  has  destroyed  the  discipHne  and  deprived  the  Depart- 
ment of  the  services  of  thousands  of  its  most  experienced  and  valued 
employees. 

It  is  suggested  that  the  Republican  national  platform  should  declare  that 
the  United  States  postal  service  should  be  operated  for  service  rather  than 
for  profit;  that  while  deprecating  waste  in  governmental  operations,  there 
is  no  true  economy  in  destroying  the  efficiency  of  the  Post  Office  Department 
by   curtailment   of   the   service   it   has  hitherto  performed,   or  by  failure   to 

99 


properly  compensate  employees  whose  expert  knowledge  is  essential  to  the 
proper  conduct  of  the  affairs  of  the  postal  system. 

It  might  with  profit  be  pointed  out  that  during  the  ascendency  of  the  Re- 
publican party  the  growth  of  the  postal  service  in  magnitude  and  efficiency 
kept  pace  with  the  development  of  the  country.  Under  Republican  manage- 
ment the  service  was  extended  to  every  nook  and  corner  of  the  country;  urban 
and  rural  free  delivery  was  inaugurated ;  the  money  order  system,  postal  sav- 
ings banks  and  parcel  post,  the  registration  system  and  special  delivery 
were  all  established;  while  in  seven  years  the  party  in  power  has  succeeded  in 
demoralizing  the  service  through  an  effort  to  demonstrate  the  economic 
soundness  of  general  government  operation  of  business. 


100 


The  High  Cost  of  Living 


Report  of  Sub-Committee 


HELEN  ROGERS  REID 

Chairman 

ALBERT  SHAW 

Vice-Chairman 


THE  HIGH  COST  OF  LIVING 

"High  Cost  of  Living"  means  the  great  rise  in  commodity  prices  since 
1914 — Index  Number  shows  an  increase  in  retail  food  prices  from  a  base  line 
of  100  in  1913  to  200  in  March,  1920— Unfavorable  effects  of  the  dollars'  re- 
duced purchasing  power  upon  (a)  pensions  and  annuities;  (b)  fixed  allowances; 
(c)  savings  deposits;  (d)  insurance  policies;  (e)  investment  holdings — Injuries 
have  been  suffered  by  (a)  salaried  classes  and  (b)  wage  earners  in  cases  where 
earnings  have  increased  more  slowly  than  general  prices — High  prices  have 
made  possible  excessive  profits  in  certain  industries,  as  well  as  "profiteering" 
practices — Rising  living  costs  have  been  indirectly  responsible  for  prevailing 
social  unrest — Prime  cause  of  high  prices  has  been  inflation  of  credit  and  ex- 
pansion of  currency — Contributing  causes  have  been  (a)  curtailed  production; 
(b)  abnormal  wages;  (c)  war  taxes — Evils  of  inflated  prices  are  in  part  ir- 
remediable— Practical  correctives  are  (a)  discontinuance  of  Treasury  certifi- 
cate borrowing  from  the  banks;  (b)  courageous  but  intelligent  deflation  of 
credit;  (c)  increased  production  of  goods  and  services;  (d)  public  economy  and 
private  thrift;  (e)  revision  of  war  taxation. 

MEANING: 

To  the  plain  citizen  of  the  United  States  the  term  "High  Cost  of  Living" 
has  a  clear  and  definite  meaning.  It  sums  up  the  hardship  and  suffering  that 
the  American  pfbple  have  borne  during  the  past  five  years,  because  of  the  great 
rise  in  the  prices  of  the  goods  and  of  the  services  upon  which  their  income  is 
ordinarily  spent.  Had  wages  and  incomes  increased  in  like  proportion,  at  equal 
pace  and  for  the  same  cause  as  general  prices,  there  would  have  been  no  rela- 
tive increase  in  living  costs.  But  such  adjustments  have  been  incomplete,  often 
delayed,  far  from  universal,  traceable  in  part  to  other  causes,  and  have  left  past 
savings  entirely  unaffected. 

This  swift  continuing  rise  in  prices  of  goods  and  services,  of  necessities  and 
conveniences  means  that  the  dollars  .that  have  been  put  aside  as  earnings,  the 
wages  that  are  being  received  as  earnings  obtain  for  their  possessors  upon 
being  called  into  service,  unit  for  unit,  barely  one-half  of  the  things  which  they 
would  have  procured  five  years  ago.  We  may  speak  of  this  either  as  the  dollars 
buying  less  or  as  the  things  costing  more.  Described  in  either  phrase,  the  fact 
is  one  and  the  same — an  abrupt  rise  in  general  prices. 

THE  FACT: 

The  accepted  measure  of  the  rise  of  commodity  prices  is  the  index  num- 
ber computed  by  the  United  States  Bureau  of  Labor  of  (a)  wholesale  commod- 
ity prices  and  of  (b)  retail  food  prices.  According  to  this  measure  the  increase 
in  prices  from  a  base  line  of  100  in  1913,  to  March,  1920,  has  been  to  253  for 
wholesale  commodity  prices ;  to  200  for  retail  food  prices ;  and  to  183  (October, 
1919),  for  an  aggregate  of  the  several  items  (food,  clothing,  fuel  and  light, 
housing,  furniture  and  furnishings,  miscellaneous)  that  enter  into  an  ordinary 
family  budget.  These  results — as  shown  in  the  following  graph — are  con- 
firmed in  all  essential  respects  by  the  exhibits  of  other  accredited  system  of 
Index  Numbers. 

103 


COURSE  OF  WHOLESALE  AND  RETAIL  PRICESI*  IN  THE  UNITED  STATES- JANUARY.  1911 70  JANUARY.  1920 

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«I3                      1914                     l»b                     1916                     1917                      1918                     I9I9               1920 

♦Retad  pnces  represent  pnces  of  the  pnncipal  articles  of  Food,    wholesale  prices  include  ^ 
articles  of  all  kinds     Figures  from  the  U.  5  Bureau  of  Labor  Statistics 

THE  EFFECTS: 

The  effect  of  this  abnormal  increase  on  general  prices  has  been  to  inflict 
the  most  serious  injury  upon  all  classes  dependent  upon  fixed  incomes  or  slowly 
adjustable  earnings.  Affecting  both  rich  and  poor  alike,  the  relative  deprecia- 
tion suffered  by  those  of  modest  mcome  and  earnings  has  been  very  much 
greater.    The  groups  affected  in  this  way  have  been: 

(a)  Those  in  possession  of  (a)    saving's  deposits ;   (b)   insurance  poli- 
cies;  (c)  investment  holdings. 

(b)  Those  dependent  upon  (a)    pensions  and  annuities;   (b)   fixed  al- 
lowances of  all  kinas. 

(c)  Those  in  receipt  of  (a)  salaries;  (b)  wages. 
Savings  Deposits 

The  savings  of  wage  earners  and  middle  class  households,  except  insofar 
as  conserved  in  home  buying  and  modest  security  holdings,  take  the  form  or 
savings  bank  deposits,  insurance  policies  (including  fraternal  and  friendly  so- 
city  benefits)  and  building  and  loan  association  credits.  The  volume  and  dis- 
tribution of  such  savings  are  enormous.  It  is  estimated  that  there  were  in  the 
United  States  in  1919  some  27,000,000  savings  depositors— practically  one  for 
every  family  in  the  country— owning  $10,573,071,000  of  savings  and  receiving 
annually  about  $400,000,000  interest  trom  the  banks.  Such  depositors  have 
reasonably  been  described  as  "with  few  exceptions,  the  people  of  small  means 
on  whom  the  nation  can  depend  to  maintain  its  institutions."     There  were, 

104 


similarly  in  the  United  States  in  1919  probably  not  less  than  35,000,000  policy- 
holders in  life  insurance  companies  ot  various  kinds  with  an  aggregate  pro- 
tective provision  of  some  $36,000,000,000.  No  trustworthy  data  are  available 
as  to  building  and  loan  association  accumulations  and  as  to  other  minor  forms 
of  working  and  middle  class  savings,  but  it  is  not  to  be  doubted  that  they 
form  a  substantial  addition  to  the  above  aggregate. 

Investment  Holdings. 

Insofar  as  savings  have  been  converted  into  security  holdings  and  invest- 
ments yielding  a  fixed  money  return,  there  has  been  a  two-fold  injury  suffered 
from  the  rise  in  general  prices.  The  purchasing  power  of  the  interest  return 
has  been  cut  in  half,  and  the  market  value  as  well  as  the  purchasing  power  of 
the  principal  has  been  seriously  impaired. 

Reducing   Purchasing   Power. 

The  influence  of  rising  prices  upon  such  accumulations  has  been  to  reduce 
their  economic  effectiveness  by  fifty  per  cent,  since  1914.  In  other  words,  the 
savings  bank  depositor,  the  beneficiary  of  insurance  policies,  the  possessor  ol 
building  and  loan  association  credits,  the  owner  of  securities  and  investments 
has  had  taken  from  him  in  the  past  five  years  in  substance  one-half  of  that 
which  he  had  put  aside  and  supposed  himself  to  possess.  To  the  extent  that 
the  dollar  may  hereafter  regain  its  purchasing  power  of  five  years  ago,  he  will 
recover  the  loss  as  to  that  part  of  his  savings  of  which  he  is  still  the  possessor. 
Insofar  as  it  will  have  been  expended  m  the  interim,  the  injury  is  irreparable. 

This  is  not  a  wholesome  exhibit.  Working  and  middle-class  savings  repre- 
sent denial  and  sacrifice  to  secure  provision  against  sickness,  accident  and  old 
age,  and  to  assure  protection,  after  the  death  of  the  bread-winner,  to  depend- 
ent wife  and  children.  That  a  large  part  of  what  has  been  earned,  often  pain- 
fully over  many  years  and  put  aside  at  great  cost  in  spirit  of  thrift,  foresight 
and  family  devotion,  should  at  the  moment  when  needed,  be  found  to  have 
been  cut  in  half — is  a  cruel  miscarriage  of  economic  justice.  As  one  man  wrote 
in  answer  to  our  Questionnaire — a  man  who  had  retired  on  the  savings  of 
forty  years  of  work :  "The  fruit  of  twenty  years  of  hard  work  has  been  wiped 
out." 

Annuities  and  Allowances. 

Similar  hardship  has  been  imposed  upon  those  in  receipt  of  annuities  and 
fixed  allowances  of  various  kinds — military  pensions,  retirement  and  service 
allowances,  disability  and  compensation  grants,  trust  and  fiduciary  provision. 
Such  beneficiaries  are  likely  to  be  of  the  class  least  able  to  bear  any  consider- 
able loss  in  real  income  without  corresponding  reduction  in  living  standards. 

Salaries. 

Little  need  be  said  as  to  the  plight  of  salaried  classes,  consequent  upon  the 
increased  cost  of  living ;  the  fact  is  one  of  widespread  and  intimate  experience. 
It  is  an  economic  commonplace  that  in  a  period  of  rising  prices,  wages  advance 
more  slowly  than  -commodity  and  service  prices,  and  salaries  more  slowly  than 
wages.  This  tendency  is  strikingly  confirmed  by  the  experiences  of  the  past 
five  years.  No  class  of  the  community  have  suffered  such  cumulative  unre- 
lieved hardship  from  rising  prices,  as  those-  whose  earnings  rest  on  a  salary 
basis — clerks,  teachers,  government  employees.  Unorganized  for  purposes  of 
collective  bargaining,  influenced  by  customary  rates  of  compensation,  animated  . 
by  high  ideals  of  service — these  groups  have  undergone  the  cruelest  denial  and 

105 


hardship  as  month  after  month  has  seen  an  actual  reduction  in  already  mod- 
est earnings.  Insofar  as  the  sheer  humanity  of  employers  or  the  intolerable 
severities  of  the  situation  have  brought  about  a  revision  in  such  salaries,  the 
increases  have  been  in  the  main  delayed  and  insufficient. 

Wages. 

There  were  in  the  United  States  in  1920  probably  not  less  than  32,000,000 
persons  receiving  wage  payments.  In  order  that  this  great  part  of  the  popu- 
lation should  be,  as  to  living  conditions,  barely  where  they  were  in  1913-14  it 
is  necessary  that  their  wages  shall  have  practically  doubled.  Even  this  would 
carry  with  it  a  mere  holding  of  the  wage  earner's  own,  with  no  increase  in 
relative  well-being,  and  with  no  part  in  general  social  progress  or  in  business 
prosperity.    Any  less  increase  would  mean  an  actual  reduction  in  real  wages. 

Our  knowledge  as  to  wage  advances  from  1914  to  1920  is  grossly  inade- 
quate. Summarized  figures  concerning  the  changes  in  trade  union  wage  scales, 
drawn  from  a  report  prepared  by  the  U.  S.  Bureau  of  Labor  statistics,  show 
that  from  May,  1913,  to  May,  1919,  the  rates  of  wages  per  hour  rose  from  100 
to  155,  and  the  rates  of  wages  per  full-time  week,  from  100  to  148 ;  since  May, 
1919,  the  movement  has  probably  continued  upwards,  but  precise  data  are  not 
available.  On  the  other  hand,  the  average  weekly  earnings  in  the  factories  of 
New  York  State,  as  computed  by  the  Industrial  Commission  of  that  State,  rose 
from  100  in  June,  1914,  to  208  in  February,  1920,  as  compared  with  a  corre- 
sponding rise  in  retail  food  pricefe  from  100  to  200;  but  not  until  September, 
1919,  did  the  wage  increase  outrun  the  food  rise.  Finally  the  U.  S.  Bureau  of 
Labor  has  collected  sample  data  in  eleven  basic  industries  as  to  changes  in 
earnings  per  hour  from  1913  to  1919.  In  six  of  these,  involving  1,573,000  work- 
ers, the  increase  in  wage  rates  has  been  greater  than  the  mcrease  in  the  cost 
of  living;  in  five,  including  881,000  workers,  it  has  been  less. 

From  such  data,  supplemented  by  specific  experience,  it  seems  likely  that 
the  wages  of  well-organized,  skilled  woi  kers  and  of  unorganized  but  favorably 
located  (as  to  proximity  to  cantonments,  munition  plants,  shipyards,  war  in- 
dustries) unskilled  workers — have  increased  since  1913-14  as  much  as  the  cost 
of  living,  and  in  some  cases  have  gone  much  beyond.  It  is  equally  probable 
that  the  wage  increases  which  other  important  groups  of  both  skilled  and  un- 
skilled workers  have  received  in  the  past  five  years  have  been  materially  less 
than  the  corresponding  increase  in  living  costs. 

These  exhibits  relate  to  final  outcome  and  not  to  interim  experience.  They 
contain  no  record  of  the  feeling  of  insecurity  and  of  the  anxiety  to  gain  only 
that  increase  in  money  wages  which  was  needed  to  prevent  an  actual  reduc- 
tion in  real  wages.  Competitive  industry  rarely  grants  unasked  for  wage  in- 
creases. Even  under  the  relatively  favorable  conditions  that  have  prevailed  in 
the  past  five  years,  the  wage  earner  has  been  compelled  to  fight  to  maintain  his 
foothold,  as  to  a  standard  of  life,  in  the  quicksand  of  rising  living  costs.  He 
has  derived  unrecorded  benefits  from  greater  regularity  of  employment,  from 
better  chance  of  promotion  and  from  the  readiness  with  which  members  of 
his  family  have  secured  remunerative  work.  But  in  niany  industries  and 
over  considerable  areas  even  these  advantages  have  not  accrued  pari  passu 
with  rising  prices.  ^ 

Swollen  Profits  and  "Profiteering." 

Just  as  swiftly  rising  prices  have  inflicted  grave  injury  upon  working  and 
middle  class  households,   they  have  conferred  excessive  gains  upon  favored 

106 


groups  of  manufacturers,  wholesalers  and  retailers.  This  has  been  in  conse- 
quence of  the  upward  movement  in  prices  in  the  interval  between  production 
and  purchase  by  the  ultimate  consumer.  This  does  not  necessarily  imply  un- 
scrupulous business  methods  nor  illegitimate  practices.  It  is  the  inevitable 
consequence  of  a  sharply  rising  market  which  unduly  benefits  the  active  busi- 
ness man  and  merchant,  the  stockholder  as  compared  with  the  bondholder,  the 
borrower  as  compared  with  the  creditor. 

Social  Unrest. 

There  have  been  wider  and  graver  consequences  of  rising  prices  than  the 
distresses  and  injuries  suffered  by  particular  individuals  and  groups.  Much  of 
the  social  unrest  with  which  our  country  is  now  beset  is  traceable  to  the  strug- 
gle of  wage-earning  and  salaried  classes  to  increase  their  money  incomes  so 
as  to  keep  pace  with  rising  living  costs — a  struggle  aggravated  by  the  familiar 
exhibit  of  huge  business  profits  growing  out  of  advancing  prices.  Not  only  has 
this  provoked  acuta  h\boY  disputes,  but  it  has  involved  a  less  articulate  but  a 
more  dangerous  challenging  of  the  political  and  industrial  order  under  )vhich 
such  ills  are  seemingly  possible.  Advantage  has  doubtless  been  taken  of  this 
ferment  by  radical  agitators ;  but  insofar  as  their  recent  efforts  have  been  at- 
tended with  greater  success  than  in  other  times,  it  is  at  least  in  part  a  conse- 
quence of  the  new  readiness  to  listen  to  extreme  doctrines  on  the  part  of 
those  who  have  suffered  or  have  seen  others  suffer  undeserved  injury  from 
rising  prices. 

THE  CAUSES: 

In  tracing  the  factors  responsible  for  the  sensational  rise  of  prices  between 
1914  and  1920,  it  is  evident  that  we  have  to  do,  in  the  main,  with  one  general 
cause  rather  than  with  a  body  of  particular  cause,  and  that  this  general  cause 
is  ultimate  and  basic  and  not  proximate  and  superficial.  That  the  price  of  bella- 
dona  root  ^liould  have  risen  to  3000  per  cent  in  1918  as  compared  with  100 
per  cent  in  1913,  and  that  within  the  same  period  the  price  of  oil  of  lemon 
should  have  declined  from  100  per  cent  to  34  per  cent  are  certainly  due  to  par- 
ticular and  local  causes  either  acting  independently  or  certainly  counteracting  or 
overcoming  the  effect  of  any  general  cause  that  we  may  suppose  to  have  oper- 
ated. But  the  cases  of  sensational  advance  in  price  and  the  equally  remark- 
able cases  of  decline  are  less  than  seven  per  cent  of  the  1437  representative 
commodities,  typical  of  the  whole  field  of  business  operations,  whose  price  his- 
tory during  the  war  has  been  authoritatively  traced.  The  other  9  per  cent  of 
the  commodities  "confine  their  fluctuations  within  comparatively  moderate  lim- 
its," from  the  general  trend. 

This  prime  cause  of  the  "High  Cost  of  Living"  has  been  first  and  foremost, 
a  fifty  per  cent  depreciation  in  the  purchasing  power  of  the  dollar,  due  to  a 
gross  expansion  of  our  currency  and  credit.  Reduced  production,  burdensome 
taxation,  wage  advances,  and  the  increased  demand  for  goods  arising  from  a 
fictitious  but  enlarged  buying  power  have  been  contributing  causes  in  a  greater 
or  less  degree. 

Inflation. 

The  facts  as  to  Inflation  can  be  set  forth  in  a  paragraph :  As  compared 
with  the  spring  of  1914— the  eve  of  the  Great  War — the  people  of  the  United 
States  are  carrying  on  their  business  at  the  present  time  with  practically 

107 


twice  as  much  money  and  bank  deposits.  There  has  been  an  increase  in  the 
actual  circulating  medium  of  the  country  from  $3,402,015,427  on  June  30, 1914, 
to  $5,846,171,213  on  February  1,  1920;  an  increase  in  the  deposits  of  national 
banks,  state  banks  and  trust  companies  from  $13,430,000,000  on  June  30,  1914, 
to  $25,731,000,000  on  June  30,  1919,  and  an  increase  in  the  individual  deposits 
subject  to  check  of  the  national  banks  alone  from  $8,470,747,000  on  June  30, 
1919,  to  $9,682,618,000  on  November  17,  1919.  Altogether  it  is  likely  that  the 
country  is  now  transacting  its  business  with  $15,000,000,000  more  circulating 
medium  and  deposits  than  five  years  ago. 

There  have  been  three  stages  in  the  course  of  our  Inflation:  (a)  from  the 
outbreak  of  the  World  War  in  August,  1914,  to  the  entry  of  the  United  States 
into  the  great  struggle,  an  incoming  flood  of  gold  served  uncorrected  as  the  basis 
of  a  towering  credit  structure;  (b)  in  the  eighteen  months  of  our  active  bel- 
ligerency lavish  supplies  of  credit  by  bank  loans  through  certificate  borrowing 
were  created,  while  the  sale  of  government  bonds  bearing  interest  well  below 
the  current  interest  rate  and  the  maintenance  of  an  artificially  low  discount 
rate  paved  the  way  for  note  and  deposit  expansion ;  (c)  from  the  armistice  of 
November,  1918,  almost  up  to  the  present  the  practices  of  the  Federal  Reserve 
Board  as  to  credit  control  were  frankly  dominated  by  the  policies  of  the 
Treasury. 

(a)  Thanks  to  huge  exports  of  munitions  and  supplies  to  the  belligerents 
and  the  sharp  decline  in  commodity  imports  from  the  war  area,  an  undreamt- 
of stream  of  gold  poured  into  the  United  States  during  the  period  of  our  neu- 
trality. Largely  in  consequence,  the  volume  of  coin,  including  bullion,  in  the 
Treasury  increased  from  $2,638,496,596  on  June  30,  1914,  to  $3,807,161,348  on 
June  30,  1918.  This  increase  in  our  stock  of  monetary  gold  of  more  than  one 
bilHon  dollars  was  magnified  by  the  changed  reserves  of  the  banks,  consequent 
upon  the  operation  of  the  Federal  Reserve  System  and  the  gold-centraHzing 
amendment  of  June  21,  1917. 

(b)  The  most  serious  factor  of  our  war-time  financing,  in  its  subsequent 
effect  upon  prices,  was  the  Treasury's  large  reliance  upon  bank  borrowing  in 
connection  with  its  certificate  issuing^  and  bond  selling  policies  during  the 
period  of  active  belligerency,  and  indeed  for  some  time  thereafter.  To  supply 
itself  with  ample  borrowed  funds  at  artificially  low  rates  and  to  keep  the  money 
market  within  artificially  favorable  limits^  huge  volumes  of  credit  currency 
were  created  by  bank  loans,  taking  the  form  of  issues- of  Treasury  certificates 
of  indebtedness  in  anticipation  of  loan  proceeds  and  tax  revenues.  Through 
the  devices  of  "payment  by  credit,"  redeposit  of  funds,  exemption  of  govern- 
ment deposits  from  reserve  requirements  and  preferential  rediscount  rates  upon 
war  paper,  anticipatory  certificate  borrowing  from  the  banks  as  practiced  by 
the  Treasury  involved  the  direct  creation  of  a  volume  of  additional  bank  credit 
in  the  form  of  public  deposits  dictated  entirely  as  to  time  and  amount  by  fiscal 
convenience  and  entirely  unrelated  to  commercial  requirement.  Such  emis- 
sions of  credit  were  dispersed  among  individual  deposit  accounts  in  the  course 
of  public  expenditure,  producing  a  direct  expansion  of  credit  and  currency 
without  succeeding  contraction  incident  to  certificate  liquidation. 

The  inflation  effect  of  certificate  borrowing  was  supplemented  by  the  pol- 
icy of  floating  huge  government  loans  at  rates  of  interest  below  the  market 
rate,  and  of  encouraging  the  public  to  borrow  funds  of  the  banks  in  order  to 

108 


make  maximum  subscriptions.  The  lending  banks  in  turn  were  enabled  to  bor- 
row advantageously  from  the  Federal  Reserve  Banks  with  the  result  of  con- 
tinuous deposit  and  note  expansion.  To  the  very  considerable  extent  that  such 
bond  buyers  did  not  reduce  their  expenditures,  increase  their  savings  and  dis- 
charge their  loans,  the  direct  effect  was  inflation. 

(c)  Reliance  upon  certificates  of  indebtedness  in  connection  with  war 
borrowing  in  the  period  of  our  belligerency  may  perhaps  be  explained  and  ex- 
cused by  the  exigencies  of  the  war  period.  Not  even  this  justification  can  be 
found  for  the  resumption  of  certificate  borrowing  at  artificially  low  rates  eight 
months  after  the  armistice,  and  the  continued  maintenance  of  artificially  low 
discount  rates. 

Since  August  1,  1919,  the  Treasury  has  emitted  issue  after  issue,  first  of 
"loan"  (to  be  distinguished  from  Liberty  Loan  or  Victory  Note  anticipatory 
issues)  and  later,  tax  certificates.  These  were  absorbed,  not  by  private  in- 
vestors, but  by  the  banks  under  a  form  of  administrative  pressure,  and  were 
paid  for  almost  entirely  "by  credit,"  that  is,  by  the  creation  of  additional  de- 
posit currency.  There  has  thus  been  injected  into  the  deposits  currency  of  the 
country  with  each  succeeding  issue  a  very  considerable  body  of  credit,  in 
the  form,  first,  of  government  deposits,  and  thereafter  as  liberated  and  dis- 
persed in  public  expenditure,  in  the  form  of  ordinary  individual  deposits.  It 
was  much  in  this  manner,  for  example,  that  for  the  year  ended  June  30,  1919, 
the  deposit  liabilities  of  the  national  banks  increased  by  the  amount  of  $948,- 
920,000  in  excess  of  the  increase  in  loans  and.  discounts — an  increase  which  the 
Federal  Reserve  Board  itself  recognized  as  "a  pure  credit  expansion,  not  called 
for  by  increased  industrial  activity,  but  occasioned  by  the  use  of  the  banks' 
credit  for  government  financing."  The  alternatives  for  certificate  borrowing 
were  (a)  decreased  expenditure,  or  (b)  increased  taxation,  or  (c)  an  additional 
funding  operation,  or  (d)  a  policy  of  generous  interest  rates  securing  a  wide 
distribution  of  the  certificates  and  avoiding  further  increase  of  bank  borrowing. 

War  Taxes. 

Since  1917  the  American  business  world  has  been  subject  to  a  body  of 
direct  and  indirect  taxes  unequalled  as  to  weight  and  extent  in  the  financial 
experience  of  any  modern  state.  During  the  war  these  taxes  were  borne  with- 
out serious  complaint;  since  the  armistice  they  have  been  the  subject  of  wide- 
spread resentment.  This  is  particularly  applicable  to  the  Excess  Profits  Tax  of 
1917.  New  in  our  fiscal  history,  imposed  as  an  emergency  war  measure,  crudely 
devised  and  imperfectly  administered — the  Excess  Profits  Tax  has  developed  a 
degree  of  friction  and  irritation  in  the  business  world  that  goes  far  towards 
establishing  its  unsuitableness  as  a  pe  ice  time  revenue  measure.  Over  and 
above  a  drag-like  effect  upon  general  business,  the  Excess  Profits  Tax  has  oper- 
ated to  aggravate  the  tendency  towards  rising  prices.  This  has  been  less  in  the 
nature  of  a  direct  and  immediate  cause,  as  is  contended  by  many  business  men 
subject  to  the  heavy  burdens  of  the  tax,  than  in  indirect  and  complex  fashion. 
In  the  main,  we  must  suppose  that  competitive  industry  realizes  at  all  times 
for  its  product  the  highest  price  the  market  will  permit,  and  that  differen- 
tial tax  on  profits  will  be  finally  borne  by  the  more  favorably  circumstanced 
producers  upon  whom  it  is  imposed,  with  little  chance  of  being  shifted  to  the 
consumer.  This  is  especially  true  under  the  conditions  which  prevailed  during 
and  for  some  time  after  war-time  industry,  when  the  spread  between  low-cost 

109 


and  high-cost  producers  is  great.  But  the  intensity  and  control  of  war  pro- 
duction once  passed,  it  is  likely  that  a  considerable  part  of  such  taxes,  as  now 
administered,  are  transferred,  directly  or  indirectly,  to  the  consumer  in  the 
form  of  higher  prices.  -  Producers  facing  the  prospect  of  heavy  tax  liabilities 
are  encouraged  into  unnecessary  and  wasteful,  but  deductible  expenditure.  The 
heavy  cash  requirements  of  Excess  Profits  tax  bills  subject  the  ordinary  busi- 
ness man  to  periodic  financial  strain,  relief  from  which  is  likely  to  be  sought 
by  bank  loans  and  further  credit  inflation.  Finally,  insofar  as  price  fixing  is 
not  strictly  competitive,  producers  will  recoup  themselves  by  adding  some  part 
of  the  tax  to  the  consumer's  price,  or  indeed  to  overprotect  themselves  by  dis- 
counting the  possibility  of  still  higher  taxes  in  the  future.  Nor  must  we  fail 
to  note  that  owing  to  very  heavy  taxation  vast  sums  that  would  normally  have 
been  reinvested  in  productive  enterprises  have  been  diverted  to  the  unproduc- 
tive channels  of  government  expenditure. 

High  Wages. 

Sharp  controversy  has  raged  as  to  whether  high  wages  have  been,  in  the 
first  instance,  the  cause  of  high  commodity  prices  or  their  result.  It  is  certain 
that  in  particular  localities  in  the  early  stages  of  the  war  and  again  just  after 
our  entry  into  the  struggle,  the  ill-considered  action  of  those  in  charge  of  muni- 
tion plants,  shipyards,  war  construction,  etc.,  in  bidding  recklessly  for  supplies 
of  labor  in  utter  disregard  of  existing  standards,  demoralized  the  entire  wage- 
level  and  compelled  a  sharp  upward  price  movement  in  the  industries  collater- 
ally affected.  Similar  in  effect  was  the  policy  pursued  in  awarding  most  of  the 
war  contracts  on  the  ten  per  cent,  plus  system.  This  necessarily  tended  to 
increase  prices  for  materials  and  labor  because  the  higher  the  contractor  could 
make  his  costs  the  greater  would  -be  his  profit.  This  opportunity  for  swollen 
profits  was  availed  of  from  the  beginning  with  absolute  disregard  of  the  public 
interest  and  established  a  level  of  costs  and  prices  never  before  reached  in 
this  country. 

It  is  probable,  however,  that  this  important  primary  movement  would  have 
exhausted  itself  in  a  rearrangement  of  wage  scales,  relative  to  industries  and 
localities,  had  not  a  great  new  volume  of  purchasing  power  in  the  form  of  ad- 
ditional credit  and  currency  been  made  available  to  bid  up,  progressively,  the 
prices  of  services  and  commodities  generally.  Thereafter,  the  well-established 
economic  law,  that  with  relative  increase  in  the  volume  of  currency  the  prices 
of  goods  will  rise  first  and  the  wages  of  labor  thereafter,  seems  to  have  pre- 
vailed. Such  data  as  are  available  indicate  that  the  rise  in  the  cost  of  living 
preceded  and  outran  the  rise  in  wages.  It  is  impossible  to  overlook  the  fact, 
however,  that  modern  economic  processes  are  interdependent  as  to  price  fix- 
ture, and  that  the  forces  making  for  inflation  once  released  there  followed  a 
vicious  circle  of  high  prices,  higher  wages  and  still  higher  prices.  Indeed,  as 
in  the  case  of  war  taxation,  business  men  have  been  encouraged  to  overprotect 
themselves  by  discounting  the  likelihood  of  still  higher  wages,  in  fixing  their 
price  lists. 

Lessened  Production. 

There  is  a  widespread  public  opinion  that  the  industrial  output  has  de- 
clined since  the  armistice,  largely  in  consequence  of  the  changed  habits  of  the 
laboring  world.  Some  part  of  this  impression  grows  out  of  the  reaction  from 
the  intensity  of  war-time  labor  effort;  some  part  is  traceable  to  the  natural 

110 


desire  of  business  men  to  increase  profitable  production.  In  particular  indus- 
tries organized  labor  has  introduced  a  "make-work"  policy  of  shorter  working 
hours  to  mop  up  surplus  labor  supply  or  to  correct  seasonable  unemployment; 
in  others  maximum  production  has  been  prevented  by  the  interruption  of  strikes 
and  lockouts.  On  the  whole,  it  seems  likely  that  "the  physical  volume  of  busi- 
ness was  only  fractionally  more  in  1919  than  in  1914."  If  regard  be  had  to  cer- 
tain great  criteria  of  business  activity — the  production  of  pig-iron  and  the 
consumption  of  cotton  and  wood — the  agggregates  for  1919  are  actually  less 
than  those  for  1912.  But  in  some  cases — notably,  dwelling  houses  and  rail- 
road equipment — there  is  actual  shortage  resulting  from  the  accumulated  de- 
mands of  the  war  period. 

Public  and  Private  Extravagance. 

A  nation  at  war  spends  lavishly.  The  need  is  so  dire,  the  urgency  so 
great,  the  revenue  so  ready  that  old  canons  of  caution  and  restrain  are  cast 
to  the  winds,  and  public  disbursement  comes  to  be  limited  only  by  the  physical 
power  to  spend.  The  heritage  of  easy  expenditure  is  a  grave  fiscal  penalty  of 
the  war.  No  exchequer  could  pass  from  a  pre-war  budget  of  $1,000,000,000  a 
year  to  a  war  budget  of  $1,000,000,000  a  month,  and  not  develop  habits  of 
prodigality  and  laxity  certain  to  be  reflected  in  rising  prices. 

The  $2,667,220,055  floating  indebtedness,  up  to  March  31,  1920;  the  $1,400,- 
664,000  discounted  member  banks*  bills  secured  by  government  war  obligations 
held  by  the  Federal  Reserve  Banks  on  April  12th,  1920 ;  the  huge  unpaid  bank 
borrowing  by  purchasers  of  Liberty  Bonds  and  Victory  Notes  (indicated  by  the 
$1,186,935,000  loans  secured  by  U.  S.  war  obligations,  held  by  the  "reporting 
member  banks"  on  April  5,  1920) — all  these  constitute  an  unliquidated  debit, 
the  periodic  renewal  of  which  has  operated  and  must  continue  to  operate  to 
check  falling  prices. 

Some  part  of  this  deficiency  may  have  been  unavoidable.  But  there  is 
much  evidence  that  a  considerable  part  of  it  is  directly  due  to  extravagant  and 
wasteful  spending  on  the  part  both  of  those,  on  the  one  hand,  whose  wages 
have  increased  more  rapidly  than  prices,  and  on  the  part  of  those,  on  the  other 
hand,  whose  incomes  liave  risen  abnormally  through  speculative  activities, 
which  have  been  easily  successful  during  the  period  of  inflation.  Operating  to 
reduce  the  nation's  savings,  such  practices  have  further  served  as  a  direct  stim- 
ulus to  price  increase. 

THE  REMEDY: 

The  bitter  penalty  of  price  inflation  is  that  its  evils  are,  in  large  part,  be- 
yond remedy.  We  cannot  hope  soon  to  return  from  the  economic  disturbances 
of  the  credit  expansion,  public  and  private,  of  the  past  five  years,  nor  to  re- 
turn to  the  conditions  from  which  it  has  dislodged  us.  Price  deflation  is  an  un- 
welcome process  in  which  the  general  interest  is  likely  to  find  itself  opposed 
by  particular  groups.  Speculative  elements  in  the  business  world  will  be  dis- 
pleased at  the  prospect  of  lower  markets;  the  debtor  body  will  resent,  as  to  un- 
wisely assumed  obligations,  the  burden  of  heavier  interest  charge;  the  public 
treasury  will  be  called  upon  to  bear  the  weight  of  a  heavier  debt  pressure. 

But  if  speedy  and  complete  return  to  before-war  prices  be  a  counsel  of 
perfection,  there  are  certain  wholesome  things  that  can  be  done,  and  it  is  upon 
these  that  present  effort  should  be  centered.    In  the  first  place,  there  should 

111 


be  no  placid  acquiescence  in  the  existing  state  of  affairs  and  no  tolerant  uncon- 
cern as  to  the  courses  which  have  brought  us  there.  Responsibility  for. Infla- 
tion should  be  definitely  and  specifically  assigned  as  to  persons  and  places — ^this 
in  no  vindictive  sense,  but  that  there  may  hereafter  be  complete  avoidance  of 
like  error.  Only  a  full  recognition  of  the  part  which  the  fiscal  methods  of  the 
past  five  years  have  played  in  bringing  us  to  our  present  pass  will  afford  sure 
protection  for  the  future.  In  the  second  place,  there  should  be  no  further  re- 
course, under  any  warrant  or  pretext,  to  those  fiscal  methods  and  banking 
practices  which  have  up  to  this  time  encouraged  or  permitted  Inflation.  To  tol- 
erate an  ill  is  one  thing;  to  aggravate  is  another.  The  doctrine  of  practical  ne- 
cessity may  do  yoeman  service  in  defense  of  unsound  war-time  policies ;  it  may 
not  be  as  securely  invoked  in  the  calmer  years  that  follow.  Finally,  though 
we  may  not  fully  retrace  our  steps  nor  undo  the  largest  mischief  that  has  been 
done,  yet  our  faces  should  be  set  in  the  true  directions.  The  great  evil  of  Infla- 
tion has  been  social  injustice.  To  atone  in  part  for  this  by  a  gradual  but  cour- 
ageous contraction  of  bank  credit,  with  its  reasonably  certain  consequence  of 
an  appreciating  money  unit  as  speculation  is  checked  and  production  catches 
up — ^is  a  wise  and  just  policy.  If  we  neglect  this,  under  the  influence  of  finan- 
cial convenience  and  business  advantage,  we  shall  fail  to  correct  the  situation. 

Certificate  Borrowing. 

In  accordance  with  the  foregoing,  the  first  step  in  correction  of  the  High 
Cost  of  Living  is  to  stop  further  credit  Inflation  on  the  part  of  the  Treasury 
in  the  form  of  certificate  borrowing — "The  engines  producing  Inflation  must 
be  arrested  before  they  may  safely  be  reversed."  Designed  originally  to  an- 
ticipate the  proceed  of  war  loans  and  taxes  without  monetary  strain,  the  Treas- 
ury certificate  of  indebtedness  has  degenerated,  since  the  armistice,  into  a  de- 
vice for  masking  the  existence  and  for  staving  off  the  maturity  of  the  huge 
floating  debt.  The  procedure  of  credit  issues  to  balance  current  budgets,  which 
Secretary  Glass  so  violently  reprobated  in  the  case  of  European  states,  has  in 
essence  been  our  practice  during  the  past  eighteen  months.  Whereas  our  late 
Allies  have  used  inconvertible  note  issues,  we  have  employed  the  more  insidious 
form  of  bank  credits.  The  inflating  effect  of  the  two  methods  upon  the  price 
level  has  differed  only  in  degree. 

In  Heu  of  certificate  borrowing  of  this  kind  the  existence  of  the  floating 
debt  should  be  frankly  recognized,  its  volume  determined  and  responsibility 
for  its  incurring  clearly  assigned.  If  circumstances  permit  a  funding  opera- 
tion or  discharge  of  taxation,  this  should  be  done.  If  short  term  renewal  is 
inevitable,  this  should  be  accomplished  through  obligations  adjusted  as  to  in- 
terest rate  so  as  to  insure  bona  fide  investment  absorption  from  out  of  existent 
credits,  instead  of  lodgment  with  the  banks  under  a  form  of  administrative  com- 
pulsion and  payment  by  additional  credit  creation. 

Deflation. 

Progressive  inflation  arising  out  of  the  Treasury's  borrowing  once  checked, 
there  should  be  a  courageous  but  intelligent  reduction  in  the  volume  of  exist- 
ing bank  credit  and  note  circulation.  It  should  be  clearly  recognized  that  credit 
expansion  and  enlarged  note  issue  are  primarily  responsible  for  high  prices, 
and  that  an  increasing  discount  rate  is  the  instrument  for  arresting  such  ten- 
dencies. Not  only  the  prevention  of  further  inflation  but  a  reduction  of  that 
already  in  existence  are  the  purposes  in  view.     Preference  in  bank  credits 

112 


should  be  given  to  industries  engaged  in  the  production  of  essentials.  Wisely 
and  skilfully  handled,  this  will  involve  no  business  disturbance.  Speculation, 
in  commodities  as  in  securities,  will  be  checked  and  insecure  marginal  enter- 
prises will  be  liquidated ;  but  these  are  wholesome  and  collateral  advantages. 

Increased  Production. 

The  price  level  is  the  resultant  of  two  factors — the  volume  of  money  and 
the  mass  of  commodities.  Over  and  above  measures  of  deflation,  the  increased 
relative  production  of  goods  and  services  is  therefore  certain  to  bring  about 
some  correction  if  high  living  costs  insofar  as  these  are  due  to  an  abnormal 
increase  in  the  circulating  medium.  The  possibilities  of  increased  production, 
through  more  effective  labor  and  more  fully  equipped  plants  are  great,  and 
every  effort  should  be  expended  to  that  end.  Such  a  speeding-up  of  industry  is 
desirable,  not  only  as  a  thing  good  in  itself  in  providing  a  greater  supply  of 
goods  and  services ;  but  it  is  important  in  operating  to  supplement  a  policy  of 
deflation  in  reducing  prices.  Increased  production  is  sometimes  urged  as  a  suf- 
ficient corrective  of  high  prices.  But  this  tends  to  neglect  the  immediate  cause 
and  the  direct  remedy.  Efforts  in  the  direction  of  increased  production  should 
reinforce,  not  replace  a  policy  of  credit  and  currency  deflation. 

Public  Economy  and  Thrift. 

Quite  apart  from  its  fiscal  importance,  a  policy  of  drastic  economy  is  now 
imperative  from  the  standpoint  of  lower  living  costs.  Only  in  this  way  can 
existing  burdens  of  taxation  be  reduced,  and  industrial  energies  be  diverted  to 
the  increased  production  of  ordinary  goods  and  services. 

The  complement  of  public  economy  are  private  thrift.  If  further  credit 
expansion  and  price  increase  is  to  be  avoided,  not  only  must  the  savings  of  the 
nation  supply  the  funds  for  the  liquidation  of  a  formidable  floating  debt,  but 
they  must  also  provide  for  the  rapid  enlargement  of  the  country's  industrial 
capital  upon  which  increased  production  very  largely  depends. 

Tax  Revision. 

Plan  and  fashion  as  we  will,  the  country  is  in  for  a  prolonged  period  of 
heavy  taxation.  Facing  this  prospect,  every  effort  should  be  made  to  use 
those  particular  taxes  which  will  do  least  harm  to  the  economic  and  social  life 
of  the  nation  and  at  the  some  time  realize  the  largest  measure  of  justice  as  to 
incidence  and  distribution.  Such  policies  are  certain  to  contribute  to  the  cor- 
rective forces  making  for  a  reduction  of  living  costs. 

Summary. 

In  summary;  rigorous  avoidance  of  further  inflation  in  our  government 
borrowing,  courageous  but  inteUigent  deflation  of  credit  and  contraction  of  cur- 
rency, heightened  production  of  goods  and  services,  public  economy  and  private 
thrift,  revision  of  taxation  as  to  distribution  and  incidence — these  are  the  ap- 
proaches to  successful  attack  upon  the  High  Cost  of  Living. 


113 


Industrial  Relations  and  the  Prob- 
lems of  Capital  and  Labor 


Report  of  Sub-Committee 


R.  J.  CALDWELL 

Chairman 


INDUSTRIAL  RELATIONS  AND  THE  PROBLEMS 
OF  CAPITAL  AND  LABOR 

Industrial  Relations  Are  Fundamentally  Human  Relations — Losses  from 
Industrial  Warfare — Collective  Bargaining — Three  Plans  for  the  Settlement  of 
Industrial  Disputes  (1)  Compulsory  Adjudication  or  Arbitration;  (2)  Voluntary 
Mediation,  Conciliation  or  Arbitration,  Coupled  with  Compulsory  Inquiry  and 
Reliance  for  Enforcement  upon  Enlightened  and  Informed  Public  Opinion;  (3) 
Economic  Pressure  with  a  Minimum  of  Governmental  Supervision  but  Without 
Compulsion  Except  as  a  Matter  of  Voluntary  Contract — The  Kansas  Industrial 
Relations  Court — Voluntary  Mediation,  Conciliation  and  Arbitration — Federal 
Legislation  for  the  Settlement  of  Industrial  Disputes — The  Erdman  Act,  the 
Newlands  Act,  and  the  Adamson  Act — The  Canadian  Industrial  Disputes  Inves- 
tigation Act — Trade  Union  and  Employer  Organizations  and  Economic  Pres- 
sure— Second  National  Industrial  Conference — English  Experience  with  Legis- 
lation to  Prevent  Strikes — Shop  Committees  and  Industrial  Councils  —  Legal 
Responsibility  of  Labor  Unions,  Abuses  of  Injunctions  and  Exemption  from 
Anti-Trust  Laws. 

INDUSTRIAL  RELATIONS  AND  PROBLEMS  OF  LABOR  AND  CAPITAL. 

Industrial  Relations  Fundamentally  Human  Relations. 

Industrial  Relations  have  increasingly  become  national  in  scope,  importance 
and  public  interest.  They  comprise  and  affect  the  largest,  and  from  the  point 
of  view  of  public  interest,  the  altogether  most  important  of  the  three  outstand- 
ing factors  in  industrial  organization,  management,  and  production,  namely: 
(1)  men,  (2)  materials,  (3)  markets. 

Industrial  Relations  are  therefore  economic,  psychological,  and  spiritual, 
and  they  measure,  in  proportion  as  they  successfully  combine  these  three  ele- 
ments, the  prosperity,  happiness,  and  creative  energies  of  a  nation.  But  only 
a  few  aspects  of  Industrial  Relations  are  political  in  their  nature.  Therefore 
only  a  few  of  them  are  proper  subjects  for  the  consideration  and  action  of  a 
political  party.  ^ 

It  is  important  as  a  matter  of  economics  to  distinguish  between  two  dif- 
ferent conceptions  of  the  relation  between  capital  and  labor.  One  is  that  the 
relation  is  contractual  and  that  employer  and  employee  have  diverse  interests. 
The  other  is  that  the  true  relation  is  that  of  co-partnership  in  a  common  task. 
The  only  questions  which  have  a  political  character  are  those  which  con- 
cern the  settlement  of  industrial  disputes  by  strikes  or  through  tribunals  cre- 
ated to  adjust  them. 

Losses  from  Industrial  Warfare. 

Strikes  and  industrial  disputes  are  common  in  all  stages  of  industry.  They 
are  costly  to  the  workers,  whose  wages  are  reduced  from  this  enforced  absence 
from  work.  Statistics  of  the  exact  nature  of  such  loss  are  not  very  plentiful 
nor  very  conclusive.  Massachusetts  strike  reports  for  a  period  of  ten  years 
showed  an  average  of  1,000,000  working  days  per  year  lost  through  strikes,  and 
more  recent  reports  from  the  New  York  Industrial  Commission  show,  for  that 

117 


state,  an  average  of  3,625,000  working  days  per  year  lost  during  the  years  1915 
to  1918  inclusive. 

It  is  estimated  that  leaving  out  occupations  in  which  strikes  rarely  occur, 
such  as  the  professions,  clerical  work,  etc.,  the  workers  in  typical  industrial 
States,  on  the  average  over  a  term  of  years,  sustain  an  economic  loss  of  three  to 
four  days'  idleness  per  year,  which  is  only  a  little  less  than  the  estimated  loss 
of  five  or  six  days  annually  through  sickness.  This  direct  loss  is,  however,  only 
a  small  part  of  the  total  loss  which  falls  most  heavily  on  the  workers  themselves. 
Interruption  of  work  means  decreased  production,  and  frequently  higher 
prices,  which  add  to  the  wage  loss  of  the  workers  and  put  part  of  the  burden 
on  the  innocent  public. 

The  increasing  dependence  of  the  public  upon  the  continuous  production 
of  their  basic  industries,  and  especially  upon  transportation,  food  and  fuel, 
serves  to  spread  the  losses  from  industrial  warfare  still  more  widely.  This 
dependence  affects  with  an  increasingly  important  and  sensitive  public  interest 
the  relations  of  all  persons  engaged  in  production,  whether  capitalists,  employ- 
ers, managers  or  wage-earners. 

Collective  Bargaining. 

Collective  bargaining  means  negotiation  between  the  employer  or  an  asso- 
ciation of  employers  acting  through  representatives  and  the  employees  acting 
as  a  group  through  their  representatives.  Employees  act  as  a  group  either 
through  a  trade  or  labor  union  or  through  some  other  plan  of  employee  repre- 
sentation. The  advantages  of  organization  and  of  collective  bargaining  are  so 
generally  recognized,  and  indeed  are  so  essential  in  the  very  nature  of  that  part 
of  all  modem  industrial  enterprise  which  controls  and  determines  practically 
the  standards  for  the  whole  industrial  process  that  no  discussion  or  declara- 
tion of  the  abstract  principle  seems  necessary. 

There  is  considerable  evidence  to  show  that  collective  bargaining  has,  on 
the  whole,  contributed  to  the  stabilization  of  industry  and  to  wholesome  lim- 
itations on  the  competition  among  employers  with  respect  to  their  labor  costs, 
as  well  as  to  the  progressive  improvement  of  wages  and  working  conditions  for 
ejnployees.  There  is  by  no  means  such  widespread  agreement,  however,  con- 
cerning the  methods  and  machinery  of  collective  bargaining. 

Our  inquiries  show  that  a  real  difficulty  is  encountered  in  the  selection  of 
representatives  of  groups  of  employees.  In  our  opinion  most  employers  would 
be  willing  to  bargain  with  their  representatives,  provided  they  could  be  as- 
sured that  those  representatives  are  truly  representatives  of  their  own  em- 
ployees. Many  employers  do  not  want  to  deal  with  the  representatives  of  the 
trade  union,  because  they  think  such  representatives  are  not  sufficiently  famil- 
iar with  the  local  or  shop  conditions,  or  that  they  represent  the  interests  of  the 
union  as  a  whole  more  faithfully  than  the  local  needs  of  their  members  in  the 
particular  shop  or  territory  involved.  The  trade  unions  through  their  leaders, 
on  the  other  hand,  state  that  representatives  chosen  from  among  those  who  are 
directly  dependent  upon  the  employer  involved  do  not  make  the  freest,  most 
independent  and  best  negotiators. 

The  question  of  free  choice  of  representatives  on  the  basis  of  a  universal 
secret  ballot  without  regard  to  the  union  affiliation  of  either  the  employees 
involved  in  the  dispute  or  affected  by  the  terms  of  the  collective  bargain,  or 
the  union  affiliation  or  non-affiliation  of  the  representatives  they  choose,  while 
apparently  presenting  the  only  fair  principle  of  making  collective  bargaining 

118 


effective,  is  not  without  practical  difficulties  in  execution,  and  is  not  unani- 
mously agreed  to.  The  results  of  our  questionnaires  show  that  opinion  is 
equally  divided,  with  a  slight  preponderance  in  favor  of  free  choice  of  repre- 
sentatives on  the  part  of  all  of  those  who  answered  the  questionnaire.  Em- 
ployers' answers,  however,  are  about  two  to  one  in  favor  of  limitation  of  the 
right  of  choice  to  employees  in  the  plant  or  employment  affected.  Labor's  an- 
swers are  unanimous  in  favor  of  free  choice ;  while  answers  from  the  general 
public,  received  from  those  who  are  not  identified  with  either  employers  or 
labor,  are  rather  more  than  two  to  one  in  favor  of  free  choice. 

THREE  PLANS  FOR  THE  SETTLEMENT  OF  INDUSTRIAL  DISPUTES. 

The  most  striking  fact  brought  out  in  our  investigation  is  the  practical 
realization  on  the  part  of  the  public  that  the  community  as  a  whole,  as  dis- 
tinct from  the  various  groups  that  compose  it,  is  so  vitally  affected  by  the 
strike  and  its  costliness  and  failure  as  a  method  of  settling  industrial  disputes 
that  it  demands  from  government  a  constructive  and  less  costly  solution.  Since 
the  people  collectively  can  only  speak  or  act  through  government,  they  look  to 
government  today  to  formulate  a  plan  which  will  make  the  strike  less  frequent 
and  less  costly  and  a  plan  which  will  express  the  responsibility  of  government 
for  the  protection  of  the  public. 

There  are  three  general  schemes  for  the  settlement  of  industrial  disputes 
which  have  been  widely  discussed  and  often  tried  with  minor  variations  in  their 
detailed  application,  and  with  varying  degrees  of  success  and  failure.  They  may 
be  briefly  described  as:  (1)  Compulsory  adjudication,  or  compulsory  mediation, 
conciliation  or  arbitration ;  (2)  voluntary  mediation,  concihation  or  arbitration, 
coupled  wth  compulsory  inquiry,  and  reliance  for  enforcement  upon  enlight- 
ened and  informed  pubHc  opinion;  (3)  economic  pressure,  with  a  minimum  of 
governmental  supervision,  and  without  compulsion,  except  as-  a  matter  of  vol- 
untary contract. 

THE  KANSAS  INDUSTRIAL  RELATIONS  COURT. 

The  first  of  these  schemes  has  been  tried  in  Australia,  and  in  some  of  its 
features  in  at  least  two  American  States  (Colorado  and  Nebraska),  but  is  best 
exemplified  in  the  recent  Kansas  Industrial  Court  Law.  It  virtually  makes  the 
strike  illegal,  at  least  as  far  as  it  affects  the  basic  industries  (transportation, 
food,  fuel  and  clothing) ,  which  are  declared  to  be  affected  with  a  pubhc  inter- 
est, and  provides  for  an  impartial  tribunal  and  for  judicial  procedure  which 
makes  the  interests  of  the  public  the  supreme  consideration  and  the  responsi- 
bility of  the  Government  clear  and  definite  in  the  adjudication  of  any  dispute. 
It  does  not  take  away  resort  to  existing  machinery  for  the  private  settlement 
of  disputes  through  collective  bargaining  or  any  other  means  of  voluntary 
mediation,  conciliation  or  abitration,  where  these  agencies  are  able  to  operate 
without  causing  the  industry  to  shut  down  or  the  public  to  suffer. 

Prior  to  1915  no  American  legislation  with  reference  to  the  prevention  of 
strikes  contained  any  compulsory  features.  In  that  year  Colorado,  following  the 
Canadian  Industrial  Disputes  Act  of  1907,  restrained  strikes  and  lockouts  until 
after  a  public  hearing  was  had  and  the  findings  announced,  and  this  law  cov- 
ered all  employees  except  those  in  dom'estic  service,  in  agriculture,  and  in  es- 
tablishments employing  less  than  four  persons.  It  has  been  enforced  by  the 
Industrial  Commission  of  Colorado. 

119 


The  Kansas  Act  of  1920,  however,  forbids  entirely  strikes  or  lockouts  in 
the  manufacture  of  foodstuffs,  clothes  and  wearing  apparel,  in  mining  or  pro- 
duction of  any  substance  used  as  fuel,  in  the  transportation  of  foodstuffs, 
clothing  or  fuel,  and  in  all  public  utilities,  and  in  the  service  of  all  common 
carriers.  It  provides  a  Court  of  Industrial  Relations,  as  a  State  agency,  which 
may  institute  inquiry  in  the  case  of  an  ^  controversy  coming  within  the  scope  of 
its  jurisdiction,  and  may  serve  upon  all  parties  notice  of  its  findings.  If  any 
party  fails  to  obey  the  order  of  this  Court,  proceedings  may  be  brought  in  the 
Supreme  Court  of  the  State  to  enforce  its  order  and  penalties  imposed  for  any 
violation  of  its  order.  Suspension  or  cessation  of  an  industry  affected  by  the 
Act,  in  violation  of  the  Act  or  the  order  of  the  Court,  may  lead  to  the  Court 
proceeding,  by  legal  machinery,  to  take  over  the  industry  and  operate  it  dur- 
ing the  emergency. 

While  the  Kansas  plan  has  been  too  recently  put  into  operation  to  judge 
of  its  results,  it  has  been  widely  discussed  and  considered  by  the  legislature  of 
other  States  where  the  industrial  situation  is  much  more  complex  than  it  is  in 
Kansas.  The  results  of  our  inquiry  show  that  the  general  principle  of  the 
Kansas  Industrial  Court,  in  its  application  to  Government  employment,  is 
favored  by  a  very  large  majority  of  those  who  have  answered  our  question- 
naires. The  same  is  true,  although  the  majority  is  not  quite  so  large,  in  the 
apphcation  of  this  principle  to  public  utilities.  In  private  employment,  how- 
ever, a  large  majority  is  opposed  to  the  principle. 

It  is  to  be  noted  that  the  replies  opposed  to  the  application  of  the  princi- 
ple of  the  Kansas  Industrial  Relations  Court  to  private  employments  come  for 
the  most  part  from  persons  resident  outside  of  the  State  of  Kansas  and  there- 
fore probably  without  full  knowledge  or  experience  concerning  the  exact  scope 
and  operation  of  this  law. 

Business  and  commercial  organizations  very  generally  throughout  the  State 
of  Kansas  have  adopted  resolutions  endorsing  the  Industrial  Relations  Court. 
In  the  first  three  months  of  its  operations  six  decisions  have  been  handed  down 
affecting  disputes  in  transportation  and  fuel  industries  in  which  abuses  have 
been  corrected  that  have  been  long  end  ured  under  the  old  system,  and  it  is  also 
stated  that  during  this  period  the  Court  has  won  the  approval  of  a  growing  per- 
centage of  the  union  labor  population. 

Another  interesting  comparison  from  the  meagre  statistics  available  for 
the  first  three  months'  operations  indicates  that  the  production  of  fuel  during 
thefirst  three  months  of  1920  as  compar  3d  with  1919  was  doubled— that  there 
were  no  strikes  during  this  period  in  1920,  while  there  were  48  strikes  during 
the  corresponding  period  in  1919.  The  estimated  saving  of  wages  by  reason 
of  this  fact  is  estimated  at  $500,000. 

In  Australia,  over  a  period  of  twenty-five  years,  there  has  been  a  some- 
what wide  experience  with  industrial  courts,  having  important  and  far-reaching 
functions  in  the  attempt  to  regulate  strikes,  and  to  substitute  judicial  awards 
for  voluntary  agreements.  In  1914  Mr.  Georgo  S.  Beeby,  author  of  the  New 
South  Wales  Arbitration  Act  of  1912,  in  an  address  before  the  British  Asso- 
ciation for  the  Advancement  of  Science,  said  that  the  advantages  derived  from 
the  AustraHan  system  might  be  summarized  as  follows:  "Its  effect  on  strikes 
has  been  beneficial  in  one  direction  and  evil  in  another.  The  duration  and  in- 
tensity of  serious  disturbances  have  been  lessened;  but,  by  facilitating  the  or- 
ganization of  workmen  in  many  occupations  not  previously  unionized,  industrial 

120 


arbitration  has  largely  increased  the  number  of  strikes.  Workmen  strike  for 
smaller  things,  and  often  without  serious  provocation.  But  the  compulsory  and 
conciliatory  machinery  has  generally  shortened  the  contest  and  kept  some  check 
on  sympathetic  outbreaks  .  .  .  Little  regard  is  paid  to  any  statutory  prohibi- 
tion of  strikes.  No  Government  has  ever  yet  attempted  to  enforce  the  law 
strictly,  and  the  general  public  looks  on  the  strike  penalties  with  good-natured 
contempt.  At  the  back  of  the  public  mind  the  idea  still  lurks  that  no  law  can 
make  men  work  once  they  become  involved  in  dispute  over  real  or  imaginary 
grievances,  and  that  the  limit  of  Governmental  power  is  to  provide  methods 
of  conciliation.  A  large  section  of  workers  have  honestly  accepted  arbitration 
as  a  substitute  for  the  right  to  strike,  but  even  with  this  admission  the  most 
enthusiastic  apologist  must  acknowledge  that  the  effort  to  prohibit  strikes  by 
law  has  failed." 

Professor  George  E.  Barnett,  in  an  interesting  and  valuable  memorandum 
on  "Strikes  and  Means  for  Prevention,"  prepared  for  our  Advisory  Committee 
and  from  which  much  of  the  information  in  this  report  concerning  the  con- 
tent and  operation  of  legislation  dealing  with  strikes  has  been  taken  without 
specific  acknowledgement,  says  of  the  Australian  laws  "The  absolute  prohibi- 
tion of  practically  all  strikes  is  found  in  certain  of  the  Australian  states  .  .  . 
The  Australian  acts  have  not  secured  industrial  peace  ...  In  Australia  the  acts, 
while  originally  designed  in  some  of  the  states  to  prevent  strikes,  have  long 
since  largely  lost  that  purpose.  They  are  in  effect  acts  for  the  fixation  of 
wages  and  the  regulation  of  industry.  Soon  after  the  passage  of  these  laws  the 
workers  who  were  not  well  organized  found  they  could  secure  an  adjudication 
of  their  claims  for  better  wages  by  alleging  the  existence  of  a  dispute.  The 
expectation  that  compulsory  arbitration  involved  an  occasional  intervention. of 
the  State  to  avoid  a  strike  has  proved  to  be  completely  illusory.  Bargaining 
between  the  parties  has  ceased.  The  terms  of  the  wage  contract  are  fixed  by 
boards.  The  more  widely  extended  such  system  becomes  the  more  boards  are 
driven  to  rely  upon  general  principles  in  making  their  decisions  and  the  less 
upon  comparison  with  wages  and  working  conditions  in  other  trades.  .  .  . 
Such  a  plan  would  be  much  more  difficult  to  operate  in  the  United  States 
with  its  highly  complicated  industrial  structure  than  in  the  relatively  simple 
economic  world  of  Australia. 

It  should  be  noted  that  in  Australia  the  government  enforces  awards  only 
under  arbitration  and  the  industrial  courts  exist  for  the  protection  of  labor 
and  capital  in  connection  with  such  awards,  while  in  Kansas  the  Industrial  Re- 
lations Court  exists  primarily  for  the  protection  of  the  public. 

VOLUNTARY  MEDIATION,  CONCILIATION  AND  ARBITRATION. 

The  general  principles  of  successful  mediation  are :  (a)  It  must  be  entrust- 
ed to  a  special  type  of  person  distinct  from  those  who  may  be  successful  as 
arbitrators  or  in  conducting  public  investigations;  (b)  Mediators  must  be 
above  suspicion  that  they  are  political  appointees  or  partisans  to  either  side  of 
the  controversy ;  (c)  Most  mediation  laws  permit  mediation  only  at  the  request 
of  one  of  the  parties,  but  very  useful  results  may  come  from  univited  media- 
tion. 

Provision  by  law  for  voluntary  arbitration  rests  on  the  established  fact  that 
resort  to  arbitration  is  more  likely  if  the  facilities  are  at  hand.  Permanent 
boards  are  given  power  to  summon  witnesses,  to  cause  the  production  of  papers, 

121 


etc.  The  awards  may  be  made  legally  binding  on  the  parties,  but  this  is  also 
possible  under  an  arbitration  agreement.  Legislation  usually  provides  for  a 
new  board  for  every  occasion.  The  Newlands  Act  of  1913,  applicable  to  train- 
men in  inter-State  commerce,  provided  for  boards  for  each  special  controversy, 
and  the  second  National  Industrial  Conference  makes  similar  provision  for  its 
regional  boards.  The  Massachusetts  State  Board  of  Arbitration,  a  permanent 
body,  has  been  successful  only  as  complementary  to  a  system  of  mediation. 

All  the  types  of  non-compulsory  legislative  remedies  for  strikes  and  lock- 
outs are  found  in  American  States.  Seventeen  States  have  permanent  boards 
of  conciliation  and  arbitration ;  others  have  industrial  commissions  performing 
the  same  duties. 

Some  twenty  American  States  have  made  provisions  for  boards  of  inquiry 
for  compulsory  investigation  and  publication  of  findings,  but  they  have  rarely 
been  utihzed.  This  failure  is  due  in  part  to  the  neglect  to  provide  adequate 
machinery,  but  more  largely  to  the  extension  of  this  principle  to  too  many 
industries  not  much  affected  with  the  public  interest  or  having  much  rela- 
tion to  public  comfort.  The  general  principles  underlying  such  legislation  are : 
(a)  To  restrict  it  in  scope  to  those  cases  where  there  is  an  effective  public  in- 
terest as  in  public  utilities ;  (b)  To  make  intervention  in  such  cases  manda- 
tory ;  (c)  To  restrain  strikes  or  lockouts  until  after  the  findings  of  a  board  of 
inquiry  have  been  made  public. 

Eight  States  provide  for  an  enforcement  of  the  arbitration  award  when 
arbitration  has  been  agreed  to  by  representatives  of  both  sides. 

FEDERAL  LEGISLATION  FOR  THE  SETTLEMENT  OF  INDUSTRIAL 
DISPUTES. 

The  Act  of  Congress  of  1888  was  the  first  federal  attempt  to  deal  with 
this  matter  and  grew  out  of  the  numerous  strikes  in  many  industries  in  the 
years  1885  and  1886.  The  United  States  Commissioner  of  Labor  in  1886  re- 
ported 1,432  strikes  involving  500,000  workers  and  the  action  of  Congress  fol- 
lowed urgent  recommendations  of  President  Cleveland.  It  applied  only  to  dis- 
putes between  transportation  companies  engaged  in  interstate  commerce  and 
provided  for  the  creation,  upon  the  written  proposal  of  one  party  to  a  dispute 
if  the  other  party  agreed,  a  Board  of  Arbitration  might  be  formed — the  rail- 
road to  appoint  one  member,  the  employees  another  and  these  two  to  select  a 
third.  It  also  provided  for  a  Commission  of  Inquiry — the  President  to  appoint 
two  commissioners,  one  at  least  from  the  state  or  territory  in  which  the  con- 
troversy arose  and  with  the  Commissioner  of  Labor  as  Chairman.  The  Com- 
mission to  report  its  findings  to  the  President  and  Congress.  No  use  was  ever 
made  of  the  arbitration  feature  of  this  law  and  in  but  one  case  was  a  Commis- 
sion of  Inquiry  utilized — ^namely,  when  President  Cleveland  appointed  a  Com- 
mission in  1894  after  the  great  railroad  strike.  Out  of  the  report  of  this  Com- 
mission grew  the  Erdman  Act  of  1898,  which  provided  for  (1)  conciliation  and 
(2)-voluntary  arbitration,  and  set  up  a  permanent  commission  or  governmental 
agency. 

The  Act  of  1898  extended  to  all  railroads  engaged  in  inter-State  commerce 
and  such  of  their  employees  as  were  engaged  in  train  service,  but  did  not  apply 
to  employees  of  such  railroads  engaged  in  other  occupations.  It  provided  that 
in  case  of  disputes  the  Chairman  of  the  Inter-State  Commerce  Commission  and 
the  Commissioner  of  Labor,  upon  the  request  of  either  party,  should  endeavor 

122 


to  settle  the  dispute  or  failing  to  reach  a  settlement  should  endeavor  to  secure 
the  submission  of  the  dispute  to  arbitration.  Later  by  an  Act  of  1911  the  Presi- 
dent of  the  United  States  was  authorized  to  designate  any  member  of  the 
Inter-State  Commerce  Commission  to  perform  the  duties  imposed  upon  the 
Chairman  by  the  Act.  This  Act  was  inoperative  for  a  considerable  period. 
One  case  was  taken  up  in  1906  and  from  1906  to  1912  there  was  no  serious 
railroad  strike  or  danger  of  strike  in  which  the  provisions  of  the  law  were  not 
enforced.  In  all,  some  sixty  cases  were  handled.  In  twelve  of  these  cases  arbi- 
trations were  conducted  under  the  provisions  of  the  Act,  but  in  only  three  of 
these  were  the  parties  able  to  select  the  third  member  of  the  Board  of  Arbitra- 
tion, the  Government  designating  officials  in  nine  of  the  cases.  The  courts  were 
not  called  upon  to  enforce  any  award,  although  complaints  were  made.  In  some 
cases  the  parties  did  not  live  up  to  the  award. 

In  1913  Congress  passed  the  Newlands  Act,  which  was  a  revision  of  the  ' 
Act  of  1898,  intended  originally  to  enlarge  the  jurisdiction  of  the  Board  to  in- 
clude all  employees  of  corporations  engaged  in  inter-State  commerce  and  in  the 
mining  of  coal,  but  as  finally  passed  the  Act  apphed  only  to  inter-State  com- 
merce and  only  to  persons  actually  engaged  in  train  service.  The  Act  set  up  a 
Board  of  Mediation  and  Concihation  consisting  of  a  Commissioner  of  Mediation 
and  Conciliation  appointed  by  the  President  and  two  other  officials  of  the  Gov- 
ernment designated  to  act  with  him  as  a  Board.  The  Board  was  authorized  to 
intervene  in  any  dispute  interrupting  or  threatening  to  interrupt  commerce. 
The  Abitration  Board  provided  in  the  Newlands  Act  consisted  of  six  members 
instead  of  three,  two  chosen  by  each  party  to  the  dispute  and  the  remaining  two 
chosen  by  the  four  so  selected.  Another  important  change  was  made  in  the 
agreement  for  arbitration  that  in  the  event  of  a  difference  arising  over  the 
meaning  of  the  award,  it  should  be  referred  back  to  the  same  Board  for  a  deci- 
sion. From  1913  to  1916,  56  controversies  were  adjusted  by  the  Board  of  Me- 
diation and  Concihation;  45  settled  by  mediation  and  11  by  mediation  and  arbi- 
tration. In  2  cases  employees  made  application  to  the  Board  for  its  services^ 
in  13  the  railroads,  in  15  the  railroads  and  their  employees  made  application 
and  in  8  the  Board  proffered  its  services  and  they  were  accepted.  The  New- 
lands  Act  repealed  the  Erdman  Act. 

In  1916  the  Adamson  Act  was  passed  and  made  provision  for  an  eight-hour 
day  beginning  January  1,  1917,  with  the  existing  rate  of  pay  for  the  ten-hour 
day,  and  provided  also  for  a  Commission  to  observe  the  effects  of  the  change 
for  a  period  of  six  to  nine  months  and  the  clear  intent  of  this  Act,  in  accord- 
ance with  President  Wilson's  proposal,  was  to  provide  for.a  full  pubhc  investi- 
gation before  a  strike  or  lockout  might  lawfully  be  attempted.  Within  a  few 
months  after  the  passage  of  the  Adamson  Acts  the  railroads  were  taken  over 
by  the  Government  for  the  period  of  the  war  and  no  experience  is  therefore  re- 
corded under  that  Act  as  far  as  its  bearing  on  mediation  and  arbitration  is  con- 
cerned. 

The  Transportation  Act  of  1920,  under  title  3,  deals  with  disputes  between 
carriers  and  their  employees  and  subordinate  officials.  It  provides  for  the  inclu- 
sion of  all  employees  of  the  carrier,  while  under  the  Newlands  Act  only  those  en- 
gaged in  train  service  were  covered.  It  requires  carriers  and  their  employees 
in  cases  of  a  dispute  to  use  every  reasonable  effort  to  avoid  any  interruption  to 
operation  of  the  service.  In  case  of  failure  to  agree,  the  question  goes  to  the 
Board  provided  by  thei  Act.    Adjustment  Boards  are  to  be  formed  voluntarily 

123 


by  agreement  between  the  carriers  and  their  employees  and  disputes  relating 
to  grievances,  rules  or  working  conditions  go  to  an  Adjustment  Board,  which 
takes  up  the  dispute  on  application  of  one  of  the  parties  to  the  dispute  on  its 
own  motion  or  by  direction  by  the  Labor  Board.  Disputes  with  respect  to 
wages  or  salaries  go  directly  to  the  Labor  Board,  which  is  the  supreme  arbitral 
authority  under  the  Act  and  consists  of  nine  members,  three  representing  em- 
ployees selected  from  lists  submitted  by  the  employees,  three  representing  the 
employers  similarly  selected  and  three  representing  the  public,  all  appointed  by 
the  President  of  the  United  States.  There  is  no  provision  for  enforcement  of 
awards  beyond  the  power  of  the  Board  to  investigate  any  violation  and  make 
public  decision  as  to  such  violations. 

This  is  somewhat  analogous  to  the  plan  proposed  for  industrial  disputes 
in  general  in  the  Second  National  Industrial  Conference  plan.  It  differs  radi- 
cally from  the  previous  provisions  of  the  Newlands  Act,  in  which  mediation  was 
the  chief  remedy.  It  makes  the  Labor  Board  essentially  the  Governmental 
agency  for  fixing  wages  and  restricts  the  field  for  bargaining  and  deahng  with 
working  conditions  so  that  the  Adjustment  Boards  are  not  likely  to  be  of  great 
importance.  It  repealed  important  provisions  of  the  Newlands  Act.  It  is  con- 
sistent with  the  development  of  recent  years  looking  toward  a  national  stand- 
ardization of  wages  and  conditions. 

THE  INDUSTRIAL  DISPUTES  INVESTIGATION  ACT  OF  CANADA. 

This  Act,  passed  in  1907,  applies  to  "industrial  disputes  in  ftiining  prop- 
erty, agency  of  transportation  or  communication,  or  public  service  utility."  It 
offers  the  best  experience  concerning  results  that  may  be  expected  under  legis- 
lation of  this  type.  In  addition  to  providing  the  necessary  machinery  for  pub- 
lic inquiry,  and  the  exercise  of  compulsory  powers  of  investigation,  it  makes  it 
unlawful  and  punishable  by  fine  for  any  employer  to  lock  out  any  employee,  or 
for  any  employee  to  go  on  strike  prior  to,  or  during,  a  reference  of  a  dispute 
Wto  the  public  agency  provided.  During  the  period  of  ten  years  from  March, 
1907,  to  December,  1916,  Boards  of  Conciliation  were  set  up  in  137  disputes, 
affecting  107,500  employees,  in  which  no  strike  occurred  "during  the  investiga- 
tion or  afterwards.  Twelve  of  these  Boards  were  in  industries  not  covered  by 
compulsory  provisions;  29  were  in  mining;  53  in  railway  transportation;  9  in 
shipping;  19  in  street  railways;  and  27  in  all  other  industries,  including  the  12 
not  covered  by  compulsory  provisions.  The  results  have  not  been  wholly  satis- 
factory. During  this  period  there  were  95  disputes  in  the  industries  covered 
by  the  Act,  222  resulting  in  strikes,  and  173  which  did  not  result  in  strikes ;  36 
of  the  latter  were  settled  without  the  constitution  .of  a  Board  of  Conciliation. 
Of  the  222  resulting  in  strikes,  178  occurred  without  any  application  for  a 
Board  of  ConciHation ;  9  began  prior  to  application,  but  ended  before  the  con- 
stitution of  a  Board ;  5  began  before  application  and  continued  after  it  was  con- 
stituted; 7  commenced  after  application  but  before  a  report  was  made.  All 
these  199  strikes  were  unlawful.  Eighteen  began  after  a  Board  made  its  report 
and  were  lawful.  A  further  disconcerting  fact  is  that  while  over  half  of  all 
the  disputes  occurring  in  industries  within  the  compulsory  provisions  of  the 
law  resulted  in  illegal  strikes,  the  percentage  of  such  disputes  was  greater  in 
the  last  five  years  of  this  period — that  is,  from  1912  to  1916 — ^than  in  the  first 
five  years  prior  to  1912.  In  the  whole  ten  years  there  have  been  only  7  prose- 
cutions for  illegal  strikes  and  two  for  illegal  lockouts. 

124 


The  reasons  for  the  limited  success  of  this  Act  are  well  stated  by  Dr.  Bar- 
nett  as  follows: 

"Legislation  of  this  kind  has  been  based  on  the  belief  that  if  the  parties 
could  be  forced  to  delay  strikes  or  lockouts  until  the  findings  of  the  boards 
have  been  made  public,  public  opinion  would  then  force  the  acceptance  of  the 
findings.  Moreover,  the  chief  restraining  force  on  strikes  in  violation  of  the 
law  must  be  public  opinion." 

"The  fundamental  condition  for  the  effective  working  of  such  a  law  has 
been  disregarded  beth  in  Canada  and  Colorado  in  that  the  laws  cover  too  many 
disputes.  Public  opinion  can  only  be  counted  upon  to  act  when  the  interests 
of  the  mass  of  the  people  are  seriously  threatened.  In  Canada  the  law  pro- 
hibits strikes  or  lockouts  in  a  wide  range  of  disputes  in  which  the  pubHc  inter- 
est is  very  slight.  Disputes  at  a  single  coal  pit,  for  instance,  are  not  of  serious 
interest  to  the  public.  In  Colorado,  all  employees  except  domestic  servants, 
agricultural  workers  and  employees  of  establishments  employing  less  than  four 
hands  are  covered  by  the  law.  Some  investigators  of  the  Canadian  law  have 
expressed  the  opinion  that  the  Act  even  in  its  present  form  would  prevent  a 
general  strike  on  the  railways  or  in  the  coal  fields  until  after  the  findings  of  a 
Board  were  published,  and  even  then  if  the  findings  appeared  to  be  reasonable. 
But  the  force  which  the  law  might  have  in  such  cases  is  seriously  diminished 
by  the  disrepute  into  which  it  has  been  brought  by  constant  violations." 

TRADE  UNION  AND  EMPLOYER  ORGANIZATIONS  AND  ECONOMIC 
PRESSURE. 

Existing  organizations  among  employers  and  employees  have  developed  a 
good  deal  of  machinery  for  the  settlement  of  disputes.  It  is  the  opinion  of  a 
very  large  number  of  employers  that  this  machinery  can  be  strengthened  and 
made  more  effective  without  Governmental  interference.  The  position  that  such 
employers  take  is  that  through  various  forms  of  shop  organization  better  co- 
operative relations  can  be  established  between  employer  and  employee ;  provi- 
sion can  be  made  for  the  prompt  and  just  settlement  of  disputes  that  arise  in 
fixing  of  wages,  hours  of  work,  and  other  working  conditions ;  causes  of  mis- 
understandings can  be  removed  by  fraak  personal  conferences  between  man- 
agement and  men  in  the  plant.  This  position  is  founded  on  the  principle  of 
the  individual  establishment  as  the  industrial  unit  of  production  and  mutual 
interest.  It  also  impHes  the  recognition  of  the  open  shop,  and  means  that  em- 
ployer and  employee  shall  have  the  right  and  be  unhampered  in  the  exercise 
of  the  right  to  enter  into,  and  to  determine  the  conditions  of  their  employment 
relation,  without  reference  to  affiliation  or  non-affiliation  of  either  with  any  law- 
ful organization.  It  is  not  intended  or  supposed  by  those  who  advocate  this 
principle  that  its  acceptance  will  preclude  the  employer  or  employee  from  vol- 
untarily agreeing  on  any  definite  form  of  representation,  or  upon  the  conduct 
of  a  "closed  union"  or  "closed  non-union"  establishment. 

This  position  rests  in  part  also  on  a  belief  that  there  is  a  growing  recogni- 
tion on  the  part  of  employers  that  good  working  conditions  pay  and  that  good- 
will in  the  plant  is  a  most  valuable  single  factor  on  economic  importance  and 
successful  business.  Hence  outside  pressure  or  governmental  interference  is 
not  necessary  to  supplement  or  regulate  the  natural  economic  pressure  from 
within. 

In  like  manner  the  representatives  of  a  very  large  majority,  if  not  prac- 

125 


tically  all  trade  unions,  believe  that  sufficient  machinery  exists  in  the  organi- 
zation of  the  trade  union  without  the  necessity  for  further  interference  by 
government  beyond  the  public  agencies  for  voluntary  mediation,  conciliation 
and  arbitration,  for  the  satisfactory  development  of  means  of  settling  indus- 
trial disputes  and  preventing  their  recurrence,  as  far  as  that  is  humanly  pos- 
sible. The  representatives  of  the  American  Federation  of  Labor  said  in  re- 
sponse to  our  questionnaire:  "Where  the  machinery  offered  by  the  trade 
union  movement  is  accepted  and  applied  with  intelligence,  good-will,  and  earn- 
estness, every  desirable  object  is  achieved  and  every  fair  demand  is  met  .  .  . 
The  practical  application  of  this  principle  must  be  worked  out  within  the  in- 
dustry itself."  The  industry,  and  not  the  individual  industrial  establishment, 
is  here  regarded  as  the  unit  of  operations. 

Our  inquiries  show  that  many, keen  observers  of  the  operations  of  the 
existing  machinery  relied  upon  by  employers  or  trade-unionists  to  bring  about 
the  prompt  settlement  of  industrial  disputes,  or  their  prevention,  have  not  re- 
sulted in  making  the  public  interest  supreme,  or  in  having  the  public  interest 
seriously  considered  as  a  factor,  or  in  preventing  the  public  constituting  from 
95  to  99%  of  persons  not  in  any  way  parties  to  the  dispute  suffering  severe 
losses  and  bearing  almost  the  whole  brunt  of  the  economic  pressure  which  the 
parties  to  a  dispute  bring  to  bear  upon  each  other  for  its  settlement. 

THE  SECOND  NATIONAL  INDUSTRIAL  CONFERENCE. 

The  effort  to  make  the  public  interest  the  supreme  controlling  factor  in  the 
settlement  of  industrial  disputes,  and  more  especially  in  their  prevention,  finds 
expression  in  the  plan  and  report  of  the  Second  National  Industrial  Conference 
called  in  1919  by  the  President  of  the  United  States.  This  report  was  pre- 
sented March  6,  1920,  after  several  months  of  patient  and  thorough  investiga- 
tion and  consideration  of  existing  conditions  and  opinions  of  representative  em- 
ployers, employees,  organized  and  unorganized,  and  experts  in  the  analysis  of 
economic  laws,  and  in  business  and  governmental  practices.  This  plan  recom- 
mends the  further  development  of  the  democratic  organization  of  the  rela- 
tions of  employers  and  employees  now  widely  in  progress  through  the  country. 

The  report  says:  "Employees  need  an  established  channel  of  expression 
and  an  opportunity  for  responsible  consultation  on  matters  which  affect  them 
in  their  relations  with  their  employers  and  their  work.  There  must  be  dif- 
fused among  them  a  better  knowledge  of  the  industry  as  a  whole  and  of  their 
own  relations  to  its  success."  Employee  representation  through  shop  commit- 
tees or  councils,  meeting  regularly  and  frequently,  will  serve  to  bring  about  co- 
operation in  the  problem  of  production,  and  will  prove  much  more  than  a  device 
for  settling  grievances.  Representatives  on  said  committees  must  be  selected 
by  the  employees  with  absolute  freedom  and  by  secret  ballot,  and  they  must  be 
convinced  that  the  management  will  not  discriminate  in  any  way  because  of  any 
activities  in  connection  with  such  services.  In  establishments  where  the  em- 
ployees are  all  unionized  the  shop  committees  will  be  composed  of  union  men ;  in 
others  *ome  will  belong  to  the  trade  union,  while  all  belong  to  the  shop  organi- 
zation. The  relations,  therefore,  between  the  union  and  the  shop  committee 
are  intended  to  be  complementary  and  not  mutually  exclusive.  In  some  indus- 
tries it  has  already  been  possible  to  extend  the  principles  of  employee  repre- 
sentation beyond  the  individual  plant.    Thus  voluntary  joint  councils  have  been 

126 


set  up  in  the  clothing  industry,  in  the  printing  industry  and  elsewhere,  and  are 
recognized  as  fruitful  and  interesting  experiments  in  industrial  organization. 

Relying  upon  the  shop  committee  or  the  local  organization  to  remove  the 
cause  of  most  industrial  disputes,  and,  secondly,  to  deal  with  the  vast  majority 
of  those  that  do  arise,  the  Conference  proposed  a  comprehensive  but  simple 
plan  of  Governmental  organization  to  deal  with  disputes  that  cannot  be  so  set- 
tled by  voluntary  mediation,  conciUation  or  arbitration.  It  proposes  that  the 
Government  should  provide  a  National  Industrial  Board  in  Washington  with 
local  regional  conferences  and  Boards  of  Inquiry  as  follows : 

1 — The  parties  to  the  dispute  may  voluntarily  submit  their  differences  for 
settlement  to  a  board,  known  as  a  Regional  Adjustment  Conference.  This 
board  consists  of  four  representatives  selected  by  the  parties,  and  four  others 
in  their  industry  chosen  by  them  and  familiar  with  their  problems.  The  board 
is  presided  over  by  a  trained  governmsnt  official,  the  regional  chairman,  who 
acts  as  a  conciliator.  If  a  unanimous  agreement  is  reached,  it  results  in  a  col- 
lective bargain  having  the  same  effect  as  if  reached  by  the  joint  organization  in 
the  shop. 

2 — If  the  Regional  Conference  fails  to  agree  unanimously,  the  matter,  with 
certain  restrictions,  goes,  under  the  agreement  of  submission,  to  the  National 
Industrial  Board,  unless  the  parties  prefer  the  decision  of  an  umpire  selected 
by  them. 

3 — The  voluntary  submission  to  a  Regional  Adjustment  Conference  car- 
ries with  it  an  agreement  by  both  parties  that  there  shall  be  no  interference 
with  production  pending  the  processes  of  adjustment. 

4 — If  the  parties,  or  either  of  them,  refuse  voluntarily  to  submit  the  dispute 
to  the  processes  of  the  plan  of  adjustment,  a  Regional  Board  of  Inquiry  is 
formed  by  the  regional  chairman  of  two  employers  and  two  employees  from 
the  industry  and  not  parties  to  the  dispute.  This  Board  has  the  right,  under 
proper  safeguards,  to  subpoena  witnesses  and  records,  and  the  duty  to  publish 
its  findings  as  a  guide  to  public  opinion.  Either  of  the  parties  at  conflict  may 
join  the  Board  of  inquiry  on  giving  an  undertaking  that,  so  far  as  its  side  is 
concerned,  it  will  agree  to  submit  its  contention  to  a  Regional  Adjustment  Con- 
ference, and,  if  both  join,  a  Regional  Adjustment  Conference  is  automatically 
created. 

5— The  National  Industrial  Board  in  Washington  has  general  oversight  of 
the  working  of  the  plan. 

6— The  plan  is  applicable  also  to  public  utilities,  but  in  such  cases  the 
government  agency,  having  power  to  regulate  the  service,  has  two  representa- 
tives in  the  Adjustment  Conference.  Provision  is  made  for  prompt  report  of 
its  findings  to  the  rate  regulating  body. 

The  Conference  makes  no  recommendation  of  a  plan  to  cover  sream  rail- 
roads and  other  carriers,  for  which  legislation  has  recently  been  enacted  by 
Congress. 

7 — The  plan  provides  machinery  for  prompt  and  fair  adjustment  of  wages 
and  working  conditions  of  government  employees.  It  is  especially  necessary  for 
this  class  of  employees,  who  should  not  be  permitted  to  strike. 

8 — The  plan  involves  no  penalties  other  than  those  imposed  by  public  opin- 
ion. It  does  not  impose  compulsory  arbitration.  It  does  not  deny  the  right  to 
strike.  It  does  not  submit  to  arbitration  the  policy  of  the  "closed"  or  "open'" 
shop. 

127 


The  plan  is  national  in  scope  and  operation,  yet  it  is  decentralized.  It  is 
different  froni  anything  in  operation  elsewhere.  It  is  based  upon  American 
experience  and  is  designed  to  meet  American  conditions.  It  employs  no  legal 
authority  except  the  right  of  inquiry.  Its  basic  idea  is  stimulation  to  settle- 
ment of  differences  by  the  parties  in  conflict,  and  the  enlistment  of  public  opinion 
toward  enforcing  that  method  of  settlement. 

ENGLISH  EXPERIENCE  WITH  LEGISLATION  TO  PREVENT  STRIKES. 

During  the  past  fifteen  years  four  distinct  stages  in  the  development  of 
such  legislation  are  to  be  noted,  beginning  with  the  Conciliation  (Trade  Dis- 
putes) Act  of  1896,  very  similar  in  principle  to  our  Newlands  Act  of  1913,  which 
provided  conciliation  and  mediation  machinery  confined  to  trainmen  engaged  in 
interstate  transportation.  The  Act  of  1896  recognized  existing  private  ma- 
chinery for  settling  industrial  disputes,  and  was  essentially  a  mediatory  act  cov- 
ering all  trades,  with  provisions  for  the  formation  of  temporary  arbitration 
boards.  The  second  stage  was  the  Munitions  of  War  Act  of  1915,  which  intro- 
duced compulsory  arbitration  in  all  disputes  affecting  employment  in  the  man- 
ufacture or  repair  of  arms,  ammunition,  ships,  vehicles,  or  aircraft,  or  any  other 
articles  required  for  use  in  war,  or  of  the  metals,  machines  or  tools  required 
for  their  manufacture  or  repair,  and  prohibited  strikes  and  lockouts.  By  an 
amendment  in  1916,  the  definition  of  Munitions  Work  was  widely  extended,  and 
the  Minister  of  Munitions  was  given  power  to  set  up  separate  tribunals  to  deal 
with  differences  relating  to  women  workers  and  unskilled  and  semi-skilled 
employees. 

The  number  of  days  lost  through  strikes  during  any  single  year  of  the 
war  period,  from  the  middle  of  1914  to  the  middle  of  1918,  was  less  than  half 
the  number  of  days  so  lost  during  the  recent  pre-war  period,  but  it  is  gener- 
ally felt  that  patriotism  rather  the  compulsory  arbitration  decreased  the  num- 
ber of  days.  The  third  stage  is  represented  in  the  Wages  (Temporary  Regula- 
tion) Act,  passed  in  December,  1918,  which  repealed  the  provisions  as  to  dis- 
putes of  the  Munitions  of  War  Act,  and  sought  to  secure  the  maintenance  for 
a  period  of  six  months,  of  the  minimum  wages  generally  applicable  at  the  time 
of  the  armistice.  This  Act  provided  for  the  establishment  of  a  court  of  arbi- 
tration to  deal  with  differences  referred  to  it  by  the  Minister  of  Labor.  The  pro^ 
visions  of  the  Act  were  continued  in  effect  for  another  additional  six  months  by 
the  Wages  (Temporary  Regulation)  Act  of  1919.  It  also  provided  for  the  estab- 
lishment of  a  court  of  arbitration  known  as  the  Interim  Court  of  Arbitration, 
which  during  its  life  (November,  1918,  to  December,  1919)  made  932  awards. 
All  other  questions  as  to  wages,  except  the  minimum  rates  provided  for,  were 
left  open  to  free  negotiation.  The  fourth  stage  is  covered  by  the  Industrial 
principle  of  the  Wages  (Temporary  Regulation)  Acts,  1918  and  1919.  The 
effect  of  this  was  to  keep  the  prescribed  and  substituted  rates  in  effect  until 
September  20,  1920,  and  to  enable  employees  to  sue  for  such  rates  unless  a  new 
substitute  rate  is  established  by  the  Industrial  Court  created  by  the  Act.  (2) 
The  Industrial  Court  provides  a  permanent  board  for  voluntary  arbitration. 
Members  appointed  by  the  Minister  of  Labor  to  represent  employers  ana  em- 
ployees and  general  public.  One  or  more  women  must  be  included  as  members 
of  the  Court.  The  Court  has  jurisdiction  of  disputes  referred  to, it  by  the  Min- 
ister of  Labor.  (3)  Courts  of  Inquiry.  These  may  be  established  by  the  Min- 
ister of  Labor  for  the  purpose  of  inquiring  into  a  dispute,  but  the  Court  has  no 

128 


power  to  settle  the  dispute  by  arbitration.  It  is  limited  to  making  a  statement 
of  the  case,  with  or  without  recommendations.  It  may  compel  testimony.  Its 
report  must  be  made  before  the  Parliament,  but  the  Minister  of  Labor  may  at 
any  time  publish  information  obtained  by  the  Court. 

SHOP  COMMITTEES  AND  INDUSTRIAL  COUNCILS. 

A  descriptive  report  of  typical  systems  of  shop  conditions  and  industrial 
councils  in  some  seven  industries  in  which  thirteen  shop  committee  systems 
have  been  tried  has  been  made  by  the  Bureau  of  State  Research  of  New  Jer- 
sey, published  by  the  New  Jersey  State  Chamber  of  Commerce.  The  conclu- 
sions of  this  interesting  survey  are  summarized  as  follows: 

1.  Shop  committees  operated  as  a  substitute  for  unionism  tend  to  increase 
industrial  unrest. 

2.  Shop  committees  which  are  planned  to  be  neutral  on  the.  union  question 
are  beneficial,  especially  in  the  industries  where  labor  is  little  or  not  at  all  or- 
ganized, but  they  are  unstable  in  that  they  eventually  become  either  anti  or 
pro-union. 

3.  Shop  committees  combined  with  unionism  present  an  effective  instru- 
ment for  the  protection  of  the  interests  of  all  parties  participating  in  industrial 
production  as  well  as  the  public. 

The  very  general  opposition  of  trade  unionists  to  shop  committees  is 
thought  by  the  Second  National  Industrial  Conference  to  rest  upon  a  miscon- 
ception of  the  possible  and  desirable  relations  between  the  union  and  shop  com- 
mittee. The  opposition  is  forcibly  expressed,  however,  in  the  resolution  adopt- 
ed by  the  American  Federation  of  Labor  at  its  annual  convention  in  Atlantic 
City  June  10-23,  1919,  in  which  they  are  referred  to  as  company  unions,  and 
are  generally  charged  with  the  following:  (1)  Unfair  exactions  and  repre- 
sentations; (2)  With  dominating  organization  permitted;  (3)  Intimidation  of 
committeemen;  (4)  Expert  assistance  prohibited;  (5)  Company  union  lacks 
power;     (6)    Company  union  diverts  aim. 

After  setting  forth  at  length  in  the  preamble  the  reasons  for  these  six  ob- 
jections the  resolution  declared  that — "We  disapprove  and  condemn  all  such 
company  unions  and  advise  our  membership  to  have  nothing  to  do  with  them ; 
that  we  demand  the  right  to  bargain  collectively  through  the  one  kind  of  or- 
ganization fitted  for  this  purpose — the  trades  unions,  and  that  we  stand  loy- 
ally together  until  this  right  is  conceded  us." 

The  results  of  the  answers  to  our  questionnaires  indicate  a  widespread  be- 
lief among  employers  and  the  general  public,  with  some  measure  of  acquies- 
cence from  a  few  representatives  of  labor,  that  goodwill  inside  the  plant  is  a 
more  valuable  economic  factor  to  all  concerned  than  the  kind  or  quality  or  ma- 
terials, inanimate  machinery,  or  any  other  factor  of  business  organization  anii 
management.  That  this  cannot  be  developed  directly  by  legislation,  but  that  a 
sympathetic  attitude  on  the  part  of  government  will  go  far  to  making  condi- 
tions favorable  for  its  development,  ana  that  no  agency  can  contribute  more 
than  the  shop  committee,  the  industrial  council  and  similar  devices,  for  bringing 
together  the  representatives  of  employers  and  employees  as  frequently  as  pos- 
sible and  developing  mutual  responsibility  for  and  consideration  of  the  numer- 
ous and  complex  details  that  enter  into  and  constitute  a  fundamental  human 
relationship. 

129  . 


LEGAL    RESPONSIBILITY    OF   LABOR  UNIONS,   ABUSES  OF   INJUNC- 
TIONS AND  EXEMPTION  FROM  ANTI-TRUST  LAWS. 

Our  inquiries  show  an  almost  unanimous  opinion  among  employers  and  rep- 
resentatives of  the  general  public  in  favor  of  the  incorporation  of  trade  unions 
and  organizations  of  employers  as  well,  in  order  to  insure  the  right  to  sue  and 
be  sued,  and  to  strengthen  and  develop  a  sense  of  responsibility  for  the  faithful 
performance  of  contracts.  The  opinion  of  rei5resentatives  of  labor  is  quite  as 
unanimously  opposed  to  this  view,  for  the  reason  that  trade  unions  are  volun- 
tary associations,  organized  not  for  profit,  but  for  the  mutual  protection  and 
advancement  of  the  workers,  claiming  no  privileges  or  rights  as  a  corporation 
which  its  members  would  not  have  like  all  other  citizens  under  the  general  laws 
of  the  country. 

In  like  manner  there  is  an  almost  equally  strong  opinion  among  represen- 
tatives of  employers  and  the  general  public  opposed  in  any  manner  to  weak- 
ening the  power  of  injunction  as  at  present  exercised,  although  in  some  cases 
recognizing  the  existence  of  abuse  of  this  power.  Again,  among  representatives 
of  labor  the  opinion  is  almost  unanimous  that  the  abuses  of  the  injunction  writ 
enlarged  to  include  mandatory  orders,  where  men  are  compelled  to  do  specific 
things  which  they  have  a  lawful  right  to  refrain  from  doing,  is  so  general  as  to 
make  some  restriction  of  the  injunction  as  applied  to  labor  disputes  necessary 
and  desirable. 

With  respect  to  a  special  ^exemption  of  trade  unions  or  organizations  of 
employers  for  the  mutual  protection  and  advancement  of  their  members 
from  the  provisions  of  the  anti-trust  laws,  we  find  about  an  equally  divided 
opinion  among  employers  and  representatives  of  the  general  public,  and  the 
representatives  of  labor  as  well. 

SUMMARY  AND  CONCLUSIONS. 

A  review,  analysis  and  study  of  the  numerous  official  and  unoflficial 
inquiries  concerning  the  industrial  situation  in  the  United  States  in  recent 
years  furnishes  no  conclusive  and  simple  solution  to  the  problem  of  industrial 
unrest.  A  consideration  of  the  numerous  reports  of  the  experience  of  other 
countries,  where  a  similar  industrial  situation  exists,  yields  the  same  results. 
The  special  inquiry  made  by  our  Advisory  Committee  and  the  results  of  the 
questionnaires,  which  express  ths  opinions  of  thousands  of  representative 
Americans,  do  not  point  the  way  to  any  certain  road  to  industrial  security  and 
peace. 

The  answers  to  our  questionnaire  indicate  the  following  opinions: 

(1)  That  in  the  government  service  strikes  can  legitimately  be  forbid- 
den, provided  that  the  rights  and  interests  of  the  employees  are  protected  by 
means  of  impartial  tribunals. 

(2)  Insofar  as  public  utilities  are  concerned,  there  appears  to  be  a  divi- 
sion of  opinion  as  to  whether  strikes  should  be  made  illegal,  and  the  decisions 
of  commissions  or  tribunals  be  made  legally  binding,  or  whether  provision 
should  be  made  for  thorough  inquiry  by  boards  or  commissions  and  the  force 
of  public  opinion  be  relied  on  to  enforce  their  decisions,  strikes  being  forbidden 
until  after  the  decisons  have  been  rendered. 

(3)  Insofar  as  private  employments  are  concerned,  while  many  hold  that 
there  is  no  need  for  government  action,  the  majority  of  those  expressing  an 

130 


opinion  favor  the  creation  of  some  form  of  tribunal  or  commission  composed  of 
representatives  of  employers,  employees  and  the  public,  to  whom  disputes  may 
be  voluntarily  referred,  whose  decisions,  unless  unanimous,  would  not  be  binding 
or  carry  weight,  save  insofar  as  they  enlisted  the  force  of  public  opinion.  The 
tribunals  or  commissions,  however,  should  have  the  independent  right  of  inves- 
tigation and  report  even  if  neither  party  decided  to  avail  itself  of  their  services. 
This  last  provision  is  a  recognition,  of  course,  of  the  public  interests  affected 
by  violent  industrial   disturbances,   even  in  private  employments. 

Insofar  as  the  membership  of  these  tribunals,  commissions  or  boards  are 
concerned,  it  is  essential  that  the  representatives  of  employers  and  employees 
should  be  freely  chosen  by  the  parties  themselves  through  some  form  of  secret 
ballot,  rather  than  that  they  be  appointed  by  public  officials  and  so  be  subject 
to  the  vicissitudes  of  political  influence.  A  national  board  to  supervise  and 
carry  out  such  a  plan  and  serve  as  a  court  of  last  resort  would  appear  to  be  an 
exception  to  such  a  rule. 


131 


The  Merchant  Marine 


Report  of  Sub-Committee 


GEORGE  W.  GOETHALS 

_.       Chairman 


EDMUND   E.  DAY 
Staff  Assistant 


THE  MERCHANT  MARINE 

The  American  public  demands  a  merchant  marine  under  United  States 
flag.  The  problem  is  to  establish  such  a  marine  on  a  sound  competitive  profit- 
making  basis.  In  devising  a  policy  to  this  end,  the  Government  must  proceed 
with  careful  regard  to  the  decisive  factors  of  the  present  shipping  situation. 

As  a  result  of  the  Government's  war  ship  building  program,  there  will  be 
about  12,500,000  gross  tons  of  shipping  under  United  States  flag  the  latter  part 
of  this  year.  Probably  not  more  than  about  8,500,000  tons  is  needed  to  move 
the  share  of  American  coastwise  and  foreign  trade  which  the  country  may  rea- 
sonably expect  to  carry  under  United  States  flag.  The  present  American  steel 
merchant  fleet  is  slower  than  the  British,  contains  a  larger  proportion  of  small 
vessels,  and  is  conspicuously  lacking  in  large  fast  vessels  of  special  type.  The 
wooden  vessels  cannot  possibly  contribute  to  the  establishment  of  an  Ameri- 
can merchant  fleet  and  had  best  be  disregarded.  Operating  costs  under  Amer- 
ican and  foreign  flags  have  been  substantially  equalized  since  1914.  American 
costs  are  no  longer  an  insuperable  obstacle  to  economical  operation  if  capital 
charges  can  be  made  reasonably  low.  Adequate  organization  and  competent 
personnel  are  at  present  vital  needs  of  the  industry  in  this  country.  The  ob- 
scure and  short-sighted  policies  of  the  Shipping  Board  since  the  signing  of  the 
armistice  have  had  thus  far  a  decidedly  unfavorable  influence.  The  prospect  of 
an  excess  of  world  shipping  within  the  next  two  years  makes  the  problem  more 
serious  than  it  would  otherwise  be.  It  is  clear  that  the  factors  of  the  present 
shipping  situation  make  the  formulation  of  wise  government  policy  most  diffi- 
cult, but  they  do  not  preclude  the  establishment  of  an  efficient  merchant  ma- 
rine under  United  States  flag. 

"■% 

WIDESPREAD  DEMAND  FOR  AN  AMERICAN  MERCHANT  MARINE: 

Reversal  of  Public  Opinion : 

The  war  has  brought  a  complete  reversal  of  the  prevailing  American  atti- 
tude toward  a  merchant  marine.  Where  there  was  formerly  either  indiffer- 
ence or  opposition,  there  is  now  interest  and  support.  During  the  war  the 
vital  importance  of  shipping  was  impressed  upon  the  popular  mind.  The  ship 
building  program  was  the  subject  of  an  extraordinarily  successful  publicity 
campaign.  As  a  general  result,  our  shipping  industry  has  enlisted  the  fight- 
ing spirit  of  the  nation.  The  people  insist  that  a  merchant  marine  shall  be 
permanently  established  under  United  States  flag. 
Reasons  for  Now  Favoring  American  Merchant  Marine: 

The  reasons  given  for  this  position  vary  widely.  In  the  first  place,  a 
strongly  nationalistic  sentiment  has  been  aroused.  Patriotic  pride  insists  that, 
the  flag  having  been  raised  over  our  merchant  ships,  it  shall  not  be  hauled 
down.  A  more  carefully  reasoned  argument  holds  that  an  American  merchant 
marine  is  a  necessary  provision  against  the  exigencies  of  recurrent  war;  that 
there  should  be  a  substantial  number  of  fast  passenger  and  cargo  vessels  for 
possible  use  as  naval  auxiliaries  or  army  transports,  and  a  considerable  general 
cargo  fleet  under  United  States  flag  to  keep  our  essential  trade  moving  even 
in  times  of  world  conflict.  Another  position  commonly  assumed  among  trad- 
■  ers  is  that  the  establishment  of  a  large  merchant  marine  is  essential  to  the 
successful  peace-time  development  of  our  export  business.    It  is  claimed  that 

135 


shipping  companies  of  rival  flags  discriminate  in  service  and  rates  in  faA^or  of 
traders  of  their  own  nationality,  and  at  times  divulge  information  regarding 
goods  and  customers  which  competing  traders  can  use  to  unfair  advantage; 
and  that  the  only  safeguard  against  this  is  overseas  transportation  of  Ameri- 
can goods  in  American  bottoms.  Finally,  the  argument  is  advanced  that  the 
conditions  of  competition  in  ocean  transportation  have  undergone  such  funda- 
mental changes  that  vessels  can  now  be  operated  under  American  registry  at 
reasonable  profit.  It  is  admitted  that  some  difficulty  may  be  experienced  while 
the  industry  is  setting  up  its  initial  organization  at  home  and  abroad,  but  any 
such  early  disadvantage  is  expected  gradually  to  disappear,  with  the  result  that 
American  vessels  shortly  will  be  able  to  compete  effectively  with  those  of  any 
other  nation.  The  arguments  thus  vary  widely.  But  the  conclusion  is  the 
same :  a  large  merchant  marine  must  be  permanently  established  under  United 
States  flag. 

Necessity  for  Sound  Economic  Basis: 

At  the  same  time,  it  is  generally  recognized  that  mere  ships  do  not  consti- 
tute a  merchant  marine;  that  a  great  industrial  organization  on  a  sound  eco- 
nomic basis  must  be  established.  What  is  needed  is  an  American  merchant 
marine  on  a  strong  competitive  profit-making  basis.  Efficient  operation  under 
United  States  flag  must  be  secured  with  as  little  interference  as  possible  with 
the  free  play  of  fundamental  economic  forces.  The  Government's  policy 
toward  the  merchant  marine  must  be  inaugurated  with  careful  regard  for  the 
decisive  factors  in  the  present  shipping  situation. 

PRESENT  POSITION  OF  AMERICAN  MERCHANT  MARINE:   , 

Steady  Decline  Before  War: 

Among  the  many  economic  consequences  of  the  World  War,  none  is  more 
striking  than  the  sudden  emergence  of  a  great  American  merchant  marine. 

For  more  than  half  a  century  before  the  war  American  shipping  showed  a 
steady  decline.  Prior  to  the  Civil  War,  America  vied  with  Great  Britain  in  the 
ocean-carrying  trade  of  the  world.  The  British  fleet  in  1850  totaled  5,711,000 
gross  tons ;  the  American,  5,299,000.  For  years  the  total  tonnage  under  Ameri- 
can flag  had  been  gradually  overtaking  that  under  British.  At  the  middle  of 
the  century  it  looked  as  if  the  United  States  were  soon  to  take  the  lead.  But 
1861  proved  to  be  the  high- water  mark  of  the  American  fleet.  From  then  until 
the  second  decade  of  the  present  century  there  was  an  uninterrupted  decline. 
The  steam  and  sail  tonnage  registered  for  foreign  trade  under  United  States 
flag  at  ten-year  intervals  from  1840  to  1910  is  shown  in  the  following  table;* 

Year  ended  Gross  tons 

Sept.  30,  1840 762,838 

June  30,  1850 1,439,694 

1860 2,379,396 

1870 1,448,846 

1880 1,314,402 

1890... 928,062 

1900 816,795 

1910 782,517 

It  is  clear  that  from  1860  to  1910  the  American  merchant  marine  was  disin- 
tegrating. 

The  seriousness  of  the  decline  is  even  more  evident  from  an  examination 

♦From  Annual  Report  of  the  Commissioner  of  Navigation  for  the  year  ended  June  30,  1919,  pp. 
196-198. 

136 


of  the  proportion  of  our  overseas  trade  shipped  under  American  flag.  The 
percentage  of  American  exports  and  imports  (by  value)  carried  in  American 
vessels  at  ten-year  intervals  from  1850  to  1910,  is  shown  in  the  following  table : 

Year  Percentage 

1850 72.5 

1860  66.5 

1870  35.6 

1880  17.4 

1890  12.9 

1900 9.3 

1910  8.7 

Comparatively  speaking,  the  American  merchant  marine  had  disappeared  from 
foreign  trade  by  the  first  decade  of  the  present  century.  The  substitution  of 
iron  and  steel  shipbuilding  for  wooden,  and  the  larger  inducements  to  Ameri- 
can labor  and  capital  in  directions  other  than  shipping,  had  led  to  almost  com- 
plete abandonment  of  the  industry  in  this  country. 

Great  Increase  as  Result  of  War: 

The  extraordinary  rebuilding  of  the  American  merchant  marine  is  largely 
a  result  of  the  war.  There  were  indications  that  a  return  movement  had  set  in 
even  before  the  outbreak  of  hostilities.  The  tonnage  registered  for  foreign 
trade  under  United  States  flag  arose  from  783,000  gross  tons  in  1910  to  1,066,- 
000  in  1914.  The  percentage  of  United  States  overseas  exports  and  imports 
carried  in  American  vessels  increased  from  8.7  in  1910  to  9.7  in  1914.  But 
these  changes  are  insignificant  beside  those  which  have  taken  place  since  1914. 
The  present  American  merchant  marine  is  an  after-effect  of  America's  chal- 
lenge to  Germany's  bid  for  world  supremacy.  The  country  has  a  great  mer- 
chant fleet,  not  because  a  careful  weighing  of  economic  considerations  made 
such  a  fleet  seem  desirable,  but  because  in  the  face  of  Germany's  ruthless  sub- 
marine attack  a  great  merchant  fleet  seemed  an  indispensable  instrument  for 
the  successful  prosecution  of  the  World  War. 

Like  many  other  elements  in  America's  war  program,  the  American  mer- 
chant fleet  was  only  beginning  to  show  its  strength  at  the  signing  of  the  ar- 
mistice. True,  additions  to  the  fleet  were  large  during  the  entire  period  of 
European  hostilities ;  before  our  participation  as  well  as  after.*  But  the  ac- 
cessions of  the  war  period  were  completely  overshadowed  by  those  in  prospect 
at  the  close  of  hostilities.  On  November  11,  1918,  the  building  program  of  the 
Emergency  Fleet  Corporation  provided  for  the  further  construction  of  approxi- 
mately 9,500,000  gross  tons.  Later  cancellations  reduced  this  figure  by  about 
two  and  one-half  million,  but  lelft  the  post-armistice  deliveries  at  the  enor- 
mous total  of  7,000,000  gross  tons.  This  program  is  still  under  way.  It  will 
be  practically  completed  by  the  latter  part  of  this  year.  At  that  time  the  total 
ocean-going  tonnage  under  United  States  flag  will  be  about  12,500,000  gross 
tons.  The  American  merchant  marine  will  stand  second  in  importance  to  the 
British  and  will  constitute  approximately  one-fourth  of  the  world's  total  fleet. 
Prospect  of  Excess  Over  Needs  of  American  Trade: 

With  this  enormous  fleet  definitely  provided  for,  the  question  may  be 
raised  whether  the  total  tonnage  under  United  States  flag  will  not  soon  exceed 
that  required  for  the  movement  of  American  exports  and  imports.  A  study  of 
the  foreign  trade  of  the  country  during  recent  years  shows  that  the  exports  of 
the  country  now  amount  to  about  45,000,000  long  tons  a  year  and  the  imports 

*  Acquisitions  and  losses  of  United  States  tonnage  during  the  war: 

137 


to  about  25,000,000  long  tons.  In  some  trades,  exports  are  in  excess ;  in  other 
trades,  imports.  If  the  heavier  movement  is  considered  in  each  case,  the  maxi- 
mum one-way  freight  movement  in  our  foreign  trade  may  be  said  to  approxi- 
mate 55,000,000  long  tons.  It  is  estimated  that  it  requires  between  ten  and 
eleven  million  gross  tons  of  shipping  in  continuous  service  to  move  this  volume 
of  freight  in  our  present  foreign  trade.  But  the  country  cannot  reasonably  ex- 
pect to  carry  under. its  own  flag  more  than  one-half  to  two-thirds  of  its  exports 
and  imports.f  If  our  vessels  are  operated  with  reasonable  efficiency,  the  largest 
amount  of  tonnage  we  can  expect  to  employ  at  this  time  in  our  own  foreign 
trade  is  approximately  7,000,000  gross  tons.  The  requirements  of  our  coast- 
wise trade  probably  do  not  exceed  1,500,000  gross  tons.  It  is  clear,  therefore, 
that  we  shall  have  at  the  end  of  the  present  year  an  aggregate  tonnage  in  ex- 

Aug.  1, 1914      Apr.  1, 1914  Apr.  6, 1917 

Changes                                               to                       to  to 

Nov.  11, 1918      Apr.  5, 1917  Nov.  11, 1918 
(in  thousands  of  gross  tons) 

Net  increase 3,369                      863  2,506 

Acquisitions— Total    4,604                   1,393  3,211 

By  construction 2,942                   655  2,287 

By  purchase  from  aliens 834                   652  182 

Brought  on  from  Lakes /               140                     65  75 

Seized  from  enemies 649  649 

Miscellaneous  sources   38                     21  18 

Losses— Total   1,235                      530  705 

By  enemy  action 387                     80  307 

By  marine  risk 430                   208  222 

By  sale  to  aliens 268                   195  73 

Miscellaneous  causes  150                    47  103 

The  data  are  for  sea-going  merchant  vessels,  500  gross  tons  and  over,  as  reported  by  the 
Division  of  Planning  and  Statistics  of  the  United  States  Shipping  Board. 

cess  of  our  present  trade.  Consequently,  the  sale  of  a  substantial  amount  of 
tonnage  to  foreign  interests  should  be  made  a  part  of  the  Government's  ship- 
ping policy. 

Composition  of  the  American  Fleet: 

The  prospects  of  our  merchant  marine  depend  in  part  upon  the  size  and 
speed  of  the  vessels  being  added  to  the  fleet.  The  small  merchant  marine  under 
United  States  flag  at  the  opening  of  the  war  presumably  consisted  of  those  ves- 
sels best  adapted  to  the  trades  in  which  the  vessels  were  engaged.  The  com- 
position of  the  fleet  built  by  the  Government,  however,  has  not  been  dictated 
by  commercial  considerations,  but  has  been  influenced  principally  by  the  desire 
to  obtain  a  maximum  of  ship  tonnage  in  a  minimum  of  time.  Inevitably,  con- 
struction has  run  to  certain  standard  sizes  and  to  those  types  for  the  building 
of  v/hich  existing  yards  have  been  already  equipped.  It  is  important,  there- 
fore, to  raise  the  question :  How  far  is  the  present  American  fleet  composed  of 
the  sizes  and  possessed  of  the  speed  necessary  to  meet  foreign  competition  on 
favorable  terms? 

Wooden  Ships  of  No  Value: 

In  the  first  place,  the  wooden  ship  must  be  eliminated  from  consideration; 
it  cannot  possibly  be  made  to  contribute  substantially  to  the  permanent  estab- 
lishment of  the  American  merchant  marine.  Of  the  13,592,711  deadweight 
tons*  in  the  final  building  program  of  the  Fleet  Corporation,  1,896,500  tons 

*The  records  of  the  United  States  Shipping  Board  and  Emergency  Fleet  Corporation  have  been 
kept  in  deadweight,  rather  than  in  gross  tons.  Deadweight  of  cargo  vessels  may  be  approximately 
converted  to  gross  by  multiplying  by  2/2;  gross  to  deadweight,  by  multiplying  by  3/2. 

fEven  the  British  just  before  the  War  were  carrying  only  about  65  per  cent,  of  their 
combined  exports  and  imports  under  their  own  flag. 

138 


consist  of  wooden  vessels  and  hulls.  These  have  never  served  any  useful  pur- 
pose except  to  impress  the  enemy  with  the  earnestness  of  our  shipbuilding  ef- 
fort. They  should  be  sold  for  what  they  will  bring,  as  largely  as  possible  to 
foreigners.  They  should  be  looked  upon  as  one  of  the  costs  of  the  war,  and 
entirely  disregarded  in  estimating  the  present  strength  of  the  American  mer- 
chant marine. 

Concrete  Vessels  an  Experiment: 

Concrete  and  composite  vessels  also  must  not  be  included  for  the  present. 
The  136,500  deadweight  tons  of  such  vessels  built  by  the  Emergency  Fleet 
Corporation  are  now,  and  for  years  will  continue  to  be,  an  experiment.  The 
immediate  future  of  our  merchant  fleet  lies  in  the  steel  ship.  It  is  to  the  steel 
tonnage  and  to  this  alone  that  we  must  look  for  the  conditions  under  which  the 
American  merchant  marine  will  meet  foreign  competition. 

Larger  Proportion  of  Small  Vessels  in  American  Than  in  British  Fleet: 

The  most  significant  size  comparison  that  can  be  made  is  between  the  pres- 
ent American  and  British  steam  fleets.  In  making  the  comparison,  tank  ves- 
sels are  to  be  excluded  as  in  an  entirely  separate  shipping  category.  Further- 
more, the  comparison  is  most  instructive  if  confined  to  vessels  of  sea-going  size. 
The  percentages  of  such  American  and  British  aggregate  gross  tonnage,  in  im- 
portant size  groups,  are  shown  in  the  following  table : 

Percentage  distribution  of  aggregate  tonnage 

\ AMERICAN  VESSELS  BRITISH  VESSELS 

Size  of  vessels  in  gross  tons                       (as  of  Jan.  1, 1919)  (as  of  Jan.  1, 1919) 

All  sizes   100.00  100.00 

2,000-3,999 : 40.7  26.0 

4,000-5,999 32.9  35.3 

6,000-7,999 18.2  18.4 

8,000-9,999 4.4  8.2 

10,000  and  over 3.8  12.1 

Later  deliveries  under  the  Government's  building  program  alter  somewhat  the 
proportions  in  the  American  fleet,  decreasing  the  percentage  of  vessels  in  the 
group  from  2,000-3,999  gross  tons,  and  increasing  the  percentage  of  vessels  in 
the  group  from  6,000-7,999  gross  tons.  But  the  general  situation  is  not  sub- 
stantially changed.  The  American  fleet  has  too  great  a  proportion  of  the 
smallest  size  vessels  and  too  small  a  proportion  of  the  largest  size  vessels. 

Also  Larger  Proportion  of  Slower  Vessels: 

A  similar  comparison  of  speed  in  the  American  and  British  sea-going  steam 

fleets  (vessels  1,600  gross  tons  and  over)  gives  the  following  results: 

Percentage  distribution  of  aggregate  tonnage* 

AMERICAN  VESSELS  BRITISH  VESSELS 

Speed  of  vessels  in  knots  (as  of  Feb.  1, 1919)  (as  of  April  1, 1919) 

All  speeds 100.00  100.0 

Under  9 4.6  7.6 

9-111/2 69.6  46.5 

12-141/2 18.9  31.3 

15-171/2    5.8  10.5 

18  and  over 1.1  4.1 

Almost  two-thirds  of  the  American  vessels  show  less  than  twelve  knots  speed; 
only  slightly  more  than  one-half  of  the  British  ships  are  as  slow.    Of  fast  ves- 

♦Tankers  are  again  excluded.  The  percentages  for  British  vessels  are  based  upon  about 
90  per  cent  of  the  total  tonnage  of  steam  vessels  1,600  gross  tons  and  over,  speed  data  for 
the  remaining  10  per  cent  not  being  available. 

139 


sels  (15  knots  and  over),  the  British  have  twice  as  great  a  proportion.    Ours 
is  essentially  a  slower  fleet. 

The  composition  of  our  fleet  places  us  unmistakably  at  a  disadvantage  as 
compared  with  the  British,  despite  the  fact  that  ours  is  a  much  newer  fleet. 
Disregarding  the  wooden  vessels,  which  are  to  be  looked  upon  as  war  wastage.-^ 
it  is  clear  that  we  have  too  many  vessels  of  smaller  size  and  lower  speed.  The 
deficiency  of  vessels  of  special  type  and  high  speed  is  conspicuous. 

American   Operating   Costs  Formerly   Prohibitive: 

There  is  no  mistaking  the  great  disadvantage  of  American  ships  before 
the  war  in  the  matter  of  comparative  costs.  Ships,  stores,  repairs,  crews,  all 
cost  the  American  operator  much  more  than  the  foreign.  These  greater  com- 
parative costs  were  the  force  that  drove  the  American  merchant  marine  from 
the  sea. 

The  most  important  single  element  in  the  profitableness  of  ocean  transpor- 
tation is  in  the  capital  cost  of  the  vessel.*  In  a  statement  of  the  American 
Steamship  Owners'  Association  before  the  Senate  Committee  on  Commerce, 
February  9,  1920,  the  importance  of  the  original  cost  of  the  vessel  was  indi- 
cated by  the  following  calculation: 

Vessels  of  10,000  deadweight  tons 
AMERICAN  BRITISH 

At  cost  per  ton  of $220  =  $2,200,000       $100  =  $1,000,000 

Insurance,  3  per  cent 110,000  50,000 

Depreciation,  5  per  cent $66,000  $30,000 

Interest  on  investment,  5  per  cent 110,000  50,000 

$286,000  $130,000 

Before  the  war,  shipbuilding  costs  in  Great  Britain  were  very  much  lower  than 
in  the  United  States,  with  the  result  that  the  capital  charges  borne  by  ^an  Amer- 
ican company  operating  an  American  vessel  were  so  much  heavier  than  those  of 
a  competing  British  company  that  successful  competition  was  impossible.  The 
war  has  materially  reduced  this  difference.  Construction  costs  in  Great  Bri- 
tain today  are  nearly  as  high  as  in  the  United  States ;  perhaps  $150  as  com- 
pared with  $175  a  deadweight  ton.  So  far  as  capital^  charges  in  the  shipping 
industry  are  to  rest  upon  the  cost  of  new  vessels  hereafter  added  to  the  fleets, 
American  ship  operation  will  apparently  be  at  no  great  disadvantage.  This 
does  not  mean,  however,  that  the  American  and  British  shipping  are  already 
on  equal  terms  in  respect  to  capital  charges.  The  fleets  of  most  British  com- 
panies date  back  a  number  of  years  and  are  carried  on  the  books  today  at  sub- 
stantially less  than  present  reproduction  costs. 

Operating   Expenses   Substantially   Equalized: 

Operating  expenses  under  American  and  foreign  flags  have  been  as  strik- 
ingly equalized  by  the  war  as  have  construction  costs.  Bunker  fuel  can  be  ob- 
tained as  cheaply  by  American  companies  as  by  British.  Prevailing  wage  rates 
for  American  sailors  are  only  slightly  in  excess  of  those  for  British,  the  rates 
per  month  being  $85  and  $70  respectively.  Firemen  on  American  ships  are 
paid  $90  a  month ;  on  British  ships,  about  $75.  When  it  is  considered  that  the 
total  wage  bill,  including  pay  for  officers  as'  well  as  for  all  men  aboard  ship,  is 
less  than  ten  per  cent  of  the  operating  cost,  and  on  oil  burners  probably  not 

*President  Frank  C.  Munson  of  the  Munson  Steamship  Line  suggested  to  the  Senate 
Committee  on  Commerce  that  conceivably  differences  in  the  cost  of  American  and  British 
vessels  might  involve  a  difference  in  capital  cost  amounting  to  $548  a  day,  whereas  the  dif- 
ference in  wage  bills  does  not  much  exceed   $80  a  day. 

140 


more  than  six  or  seven  per  cent,  it  is  clear  that  the  higher  wages  paid  on 
American  vessels  are  now  a  relatively  small  factor  in  international  competi- 
tion. In  general,  American  business  ingenuity  may  be  depended  upon  to  over- 
come any  difficulties  involved  in  present  differences  of  expense  on  account  of 
labor  and  supplies.  The  decisive  factor  in  comparative  costs  is  certain  to  lie 
in  the  capital  account — in  the  original  cost  of'  the  vessel,  depreciation,  insur- 
ance, and  interest.  These  are  the  items  which  must  be  kept  at  the  lowst  pos- 
sible figure  if  American  vessels  are  -to  compete  profitably  with  those  under 
foreign  registry. 

Lack  of  Adequate  Shipping  Organization: 

One  of  the  most  serious  obstacles  in  the  way  of  a  successful  American 
merchant  marine  is  the  present  lack  of  adequate  organization.  This  appears 
in  the  first  place  on  the  side  of  investment  in  shipping  capital.  American 
financial  agencies  and  the  American  investing  public  have  never  been  educated 
to  heavy  investments  in  the  shipping  business.  On  the  side  of  ship  operation 
the  country  is  similarly  deficient.  Upon  the  whole,  our  shipping  companies 
are  small  and  inexperienced.  The  majority  have  been  so  recently  organized 
that  they  lack  strength  both  in  internal  arrangements  and  external  connec- 
tions. On  the  side  of  export  and  experienced  personnel  for  the  shipping  busi- 
ness, the  country  is  seriously  at  a  disadvantage.  At  bottom,  the  problem  of 
establishing  an  American  merchant  marine  is  as  much  a  problem  in  organiza- 
tion and  personnel  as  in  anything  else. 

Lack  of  Constructive  Government  Policies: 

Another  serious  disadvantage  under  which  American  shipping  has  labored 
during  the  past  year  and  a  half  is  the  lack  of  any  settled  constructive  policy 
on  the  part  of  the  Federal  Government.  Responsibility  for  this  difficulty  is  to 
be  placed  squarely  upon  the  United  States  Shipping  Board.  For  months  after 
the  signing  of  the  armistice  the  only  positive  suggestion  which  came  from  the 
Board  was  a  general  recommendation  that  the  Government's  fleet  should  be 
sold  to  private  companies.  The  sales  policy  subsequently  adopted  by  the  Board 
was  devised  to  have  quite  the  contrary  effect.  Although  it  has  been  evident 
from  the  start  that  the  Board  could  n  ot  possibly  dispose  of  all  its  tonnage  for 
many  months  to  come,  and  that  it  must  continue  to  control  the  operation  of  a 
huge  merchant  fleet,  it  has  been  only  within  the  past  few  weeks  that  the 
Board  has  adopted  a  constructive  policy  governing  the  operation  of  ships  un- 
der its  control.  Long  months  have  been  lost  which  should  have  been  made  to 
contribute  definitely  to  the  formation  of  the  merchant  marine  policy  of  the  Gov- 
ernment. No  defense  can  possibly  be  offered  for  the  Board's  bankruptcy  of 
constructive  proposals. 

WORLD  TONNAGE  SITUATION: 

Shortage  of  Tonnage  During  War: 

A  worldwide  shortage  of  ship  tonnage  has  been  one  of  the  striking  fea- 
tures of  the  war  period.  During  the  first  half  of  1914  ocean  freight  rates  were 
weak  and  there  appeared  to  be  a  relative  superabundance  of  merchant  shipping. 
The  outbreak  of  the  war  brought  over-seas  transportation  almost  to  a  complete 
standstill;  over-seas  shipments  were  suspended  and  vessels  tied  up  in  port. 
This  condition  prevailed  for  only  a  few  weeks,  however.    As  soon  as  it  became 

141 


apparent  that  the  war  was  not  to  be  a  short  one,  it  was  everywhere  reahzed 
that  merchant  shipping  was  to  be  one  of  the  most  vital  factors  in  the  conflict, 
and  the  demand  for  vessels  rose  to  unprecedented  heights.  The  necessity  of 
shipping  goods  for  longer  distances  than  normal  times,  the  inevitable  reduc- 
tion in  the  efficiency  of  shipping  through  convoying,  round-about  routing,  and 
port  congestion,  had  the  effect  of  decreasing  the  relative  supply.  Germany's 
submarine  warfare  wrought  havoc  in  the  allied  and  neutral  fleets  and  involved 
losses  of  about  12%  million  gross  tons.  Losses  from  other  causes  brought  the 
total  to  about  15  million  gross  tons.  Despite  feverish  attempts  to  build  ships 
with  the  utmost  speed,  construction  did  not  exceed  losses  until  late  in  the  spring 
of  1918.  At  the  signing  of  the  armistice  there  was  approximately  3,000,000 
gross  tons  less  of  ocean-going  steam  tonnage  than  at  the  beginning  of  the  war. 

Continued  Shortage  After  Signing  of  Armistice: 

The  shortage  of  ship  tonnage  continued  with  but  slight  relief  for  many 
months  after  the  cessation  of  hostilities.  Heavy  army  shipments  for.  the 
maintenance  of  troops  abroad,  the  repatriation  of  the  troops,  food  and  relief 
shipments  to  the  stricken  populations  of  Europe,  and  later  heavy  shipments 
of  material  for  the  industrial  rehabilitation  of  Europe,  imposed  exceedingly 
heavy  demands  upon  over-seas  transportation.  When  to  this  demand  was 
added  the  influence  of  the  serious  inefficiency  of  ship  operation  at  this  time, 
partly  due  to  inadequate  port  facilities  but  principally  owing  to  the  attitude  of 
labor,  it  is  not  difficult  to  see  why  freight  rates  should  have  remained  on  a 
very  high  level,  and  the  shortage  of  ships,  first  created  by  the  war,  should 
have  continued  for  over  a  year  after  the  signing  of  the  armistice. 

Probable  Excess  in  Prospect: 

There  are  indications  that  the  shipping  situation  is  soon  to  undergo  rapid 
change.  Ship  construction  has  proceeded  at  an  unprecedented  pace  during  the 
past  two  years.  Fully  four  times  as  much  tonnage  was  launched  during  1918 
and  1919  as  during  any  two  years  before  the  war.  During  the  ten  years  be- 
fore the  war  the  world's  fleet  of  ocean-going  merchant  steam  vessels  increased 
at  the  rate  of  approximately  one  and  a  half  million  gross  tons  a  year.  If  its 
increase  at  this  rate  had  not  been  interrupted  by  the  war  it  would  have  reached 
a  total  of  about  54,000,000  gross  tons  at  the  middle  of  the  current  year.  There 
is  every  indication  that  this  figure  will  actually  be  covered  by  next  July,  and 
that  therefore  the  world  will  have  in  the  latter  part  of  this  year  fully  as  large 
a  fleet  as  it  would  have  had  had  there  been  no  war.  Labor  difficulties  may  ren- 
der this  tonnage  somewhat  less  efficient  than  a  corresponding  amount  would 
have  been  under  pre-war  conditions.  Upon  the  other  hand,  it  is  probable  that 
the  demand  for  tonnage  during  the  next  few  years  will  not  be  as  great  as  it 
would  have  been  had  the  war  not  had  its  destructive  effects.  It  may  be  con- 
cluded, therefore,  that  should  construction  proceed  at  not  more  than  half  its 
pace  of  the  last  two  years  a  serious  excess  of  shipping  will  surely  result  with- 
in the  next  two  years.  And  even  if  construction,  despite  the  enormously  in- 
creased facilities,  should  not  exceed  the  normal  pre-war  figures,  some  excess  of 
shipping  is  to  be  expected.  This  prospect  mu§t  be  kept  constantly  in  mind  in 
formulating  the  Government's  policy  toward  the  American  merchant  marine. 
It  has  been  easy  enough  to  operate  ships  at  a  profit  under  the  rates  which  have 
prevailed  since  1914,    It  will  be  a  very  different  matter  to  operate  them  g«c- 

142 


cessfully  when  competition  assumes  the  intensity  it  is  likely  to  show  during 
the  next  few  years. 

GOVERNMENT  POLICY: 

Private  Ownership  and  Operation  Generally  Favored: 

Only  among  a  small  body  of  American  voters  is  there  any  desire  for  con- 
tinued Government  ownership  of  merchant  shipping.  The  few  who  favor  Gov- 
ernment ownership  do  so  through  fear  of  the  large  financial  interests  in  this 
country  and  the  great  shipping  combinations  abroad.  This  fear  is  not  shared 
by  the  great  majority.  Speaking  generally,  there  is  an  overwhelming  demand 
for  the  return  of  merchant  shipping  to  private  ownership  and  operation.  It  is 
felt  that  ship  operation  calls  for  a  flexibility  of  plan  and  resourcefulness  of  ex- 
ecution which  cannot  be  expected  of  pubhc  organizations.  It  is  contended  that 
the  Government,  with  its  cumbersome  administrative  machinery,  its  division 
of  responsibility,  its  system  of  checks  and  balances,  its  restrictions  upon  the 
selection  of  personnel,  and  its  relatively  low  compensation  to  high  officials, 
cannot  possibly  expect  to  compete  economically  with  alert  and  venturesome 
private  management.  Even  without  an  extended  review  of  the  evidence,  the 
case  seems  conclusive.  Private  enterprise  is  universally  accepted  as  the  best 
means  of  conducting  the  shipping  industry.  For  the  present,  at  least,  no  pro- 
gram will  command  common  approval  which  does  not  provide  for  the  ultimate 
return  of  the  Government's  present  merchant  fleet  to  private  ownership  and 
operation. 

Ship  Sales  Policy  of  U,  S.  Shipping  Board: 

A  program  of  ship  sales,  therefore,  is  a  necessary  element  of  the  Govern- 
ment's merchant  marine  policy.  The  desirability  of  the  sale  of  the  Govern- 
ment's fleet  was  considered  by  the  Shipping  Board  shortly  after  the  signing  of 
the  armistice.  Attention  was  first  directed  to  the  wooden  vessels,  and  theii 
sale,  even  to  foreigners,  was  authorized  as  early  as  December  12,  1918.  The 
sale  of  steel  ships  was  not  seriously  undertaken  until  Chairman  Hurley's  re 
turn  from  Europe  in  the  early  spring  of  1919.  It  was  not  until  midsummer  of 
1919  that  a  definite  sales  policy  was  finally  announced  by  the  Board. 

The  Board  has  disposed  of  its  vessels  on  two  plans:  (1)  charter  purchase; 
(2)  outright  purchase.  Under  the  former,  a  bareboat  charter  is  granted  at  a 
stated  rate  per  deadweight  ton  each  month  in  advance.  When  payments  reach 
an  amount  equivalent  to  about  one-half  of  the  purchase  price,  plus  accrued  in- 
terest at  5  per  cent,  title  passes  to  the  purchaser.  The  unpaid  balance  of  the 
price  has  then  to  be  covered  in  equal  semi-annual  instalments  during  the  re- 
mainder of  five  years  from  the  date  of  the  contract.  Interest  is  charged  on 
the  deferred  payments  at  the  rate  of  5  per  cent  per  annum. 

Under  the  plan  for  outright  purchase,  the  vessels  are  offered  at  stated 
prices,  varying,  by  reason  of  the  type  of  vessel  or  the  mode  of  payment,  from 
$200  to  $225  per  deadweight  ton  for  steel  vessels,  and  from  $90  to  $115  for 
wooden.  Somewhat  lower  prices  are  secured  if  cash  in  full  is  paid  on  delivery. 
Liberal  provision  is  made,  however,  for  payments  extending  over  five  years  in 
the  case  of  steel  vessels,  and  over  a  somewhat  shorter  period  for  wooden 
ships.    In  general,  5  per  cent  per  annum  is  charged  on  the  deferred  payments. 

143 


Actual  Sales  by  the  Shipping  Board: 

Proceeding  on  this  basis,  the  Board  on  February  21,  1920,  had  sold  the  fol- 
lowing vessels : 


STo.  sold 

Material 

Type 

96 

Steel 

Cargo 

20 

Wood 

Cargo 

10 

Composite 

Cargo 

5 

Steel 

Pass,  and  cargo 

1 

Steel 

Refrigerator 

23 

Steel 

Barge 

1 

Wooden 

Tug 

_  41 

Wooden 

Barge 

The  aggregate  proceeds  were  $111,322,418.  In  addition,  27  wooden  hulls,  not 
finished  as  ships,  had  been  disposed  of  at  prices  ranging  from  $24,000  to  $75,- 
000. 

It  is  obvious  that  sales  have  proceeded  slowly.  The  96  steel  cargo  vessels 
sold  are  to  be  contrasted  with  the  1,315  which  the  Board  on  the  same  date  had 
either  on  hand  or  under  contract  for  delivery.  The  99  wooden  hulls  and  ves- 
sels of  all  types  are  to  be  contrasted  with  the  551  either  on  hand  or  yet  to  come. 
Most  of  the  ships  sold  have  gone  to  companies  contemplating  the  use  of  the 
vessels  under  highly  profitable  shipping  contracts  already  in  hand.  Large  im- 
mediate gains  have  justified  the  purchase  of  the  ships  even  at  Shipping  Board 
prices.  Very  few  of  the  Government  vessels  have  been  sold  for  general  use. 
Despite  the  Board's  persistent  efforts,  ships  have  been  delivered  to  the  Gov- 
ernment much  more  rapidly  than  they  have  been  sold. 
Reasons  for  Slow  Progress  of  Sales: 

The  explanation  lies  in  a  number  of  contributing  factors.  In  the  first 
place,  American  financial  agencies  and  the  investing  public  have  never  been 
educated  to  large  financial  support  for  over-seas  shipping.  The  natural  indif- 
ference and  timidity  of  the  investing  public  has  been  increased  by  uncertainty 
as  to  the  Government  policy  with  regard  to  the  merchant  marine.  Capital  has 
been  unwilling  to  commit  itself  to  a  business  so  completely  under  the  domina- 
tion of  Government  action  and  so  completely  in  ignorance  of  the  probable 
course  of  that  action.  Finally,  the  action  of  the  Board  itself  in  holding  its 
steel  vessels  at  prices  ranging  from  $200  to  $225. per  deadweight  ton  has  dis- 
couraged sales.  The  Board  admits  that  the  prices  are  in  excess  of  present  con- 
struction costs  by  $15  to  $30  a  ton,  but  argues  that  tonnage  for  immediate  de- 
livery should  command  a  premium.  The  point  is  not  well  taken  if  the  perma- 
nent interests  of  the  merchant  marine  are  to  prevail.  In  attempting  to  take 
advantage  of  the  present  extraordinary  tonnage  situation,  the  Board  has  fol- 
lowed, a  short-sighted  policy.  Its  purpose  should  have  been  to  dispose  of  the 
vessels  at  prices  which  would  have  placed  the  purchasing  American  companies 
in  a  position  to  compete  favorably  with  foreign  rivals.  The  tonnage  now  oper- 
ated by  British  companies,  for  example,  does  not  stand  upon  their  book  at 
$200  to  $225  a  deadweight  ton;  nor,  for  that  matter,  at  $175. 

Policies  Governing  Ship  Operation: 

Even  if  the  sale  of  the  Government's  vessels  proceeds  with  the  utmost  im- 
aginable speed,  it  will  take  many  months,  possibly  three  to  five  years,  to  trans- 
fer the  entire  fleet  to  private  ownership.  Practically  no  one  suggests  Govern- 
ment operation  of  the  unsold  vessels.  Provision  must  be  made,  therefore,  for 
satisfactory  operation  by  private  companies  on  Government  account.    The  op- 

144 


erating  contract  recently  introduced  by  the  Shipping  Board  is  based  upon  the 
correct  principle:  the  return  to  the  private  operator  is  proportionate  in  part 
to  the  percentage  of  profit  earned. 

Development  of  American  Line  Services: 

American  effort  for  the  present  should  be  directed  primarily  toward  the 
development  of  line  services.  One  of  the  needs  of  our  present  and  prospect- 
ive export  business  is  an  adequate  provision  of  regular  freight  and  passenger 
services  to  important  regions  of  trade.  Not  only  does  our  need  point  to  the 
line,  rather  than  the  tramp,  business;  our  capacity  also  lies  in  the  same  di- 
rection. A  regular  business  between  definite  regions  of  trade,  using  always 
the  same  dock  and  terminal  facilities,  developing  permanent  commercial  con- 
nections, offers  for  American  organizing  genius  opportunities  which  are  en- 
tirely lacking  in  tramp  traffic.  The  latter  rests  more  largely  upon  long  expe- 
rience, a  world-wide  organization,  and  established  shore  connections.  It  is  a 
business  in  which  the  British  are  pre-eminently  adept,  and  in  which  any  compe- 
tition upon  our  part  would  be  beset  with  serious  hazards.  The  endeavor  to  estab- 
lish a  permanent  American  merchant  marine,  therefore,  should  center  for  the 
present  in  the  development  of  important  services. 

The  selection  of  definite  routes  and  schedules  should  follow  in  large  part 
the  lead  of  domestic  and  foreign  companies  already  successfully  established  in 
the  business.  But  it  is  part  of  the  proper  function  of  the  Government  to  in- 
vestigate the  practicability  of  new  lines  of  promising,  but  partially  undevel- 
oped, foreign  markets.  Left  entirely  to  private  initiative,  exporting  awaits  the 
establishment  of  regular  shipping  services,  and  shipping  awaits  tne  appear- 
ance of  a  steady,  substantial  flow  of  goods.  This  vicious  circle  can  sometimes 
be  quickly  broken  by  the  intervention  of  the  Government.  The  Shipping 
Board  and  the  Department  of  Commerce,  working  in  unison,  should  keep  ship- 
ping companies  fully  informed  regarding  the  trading  prospects  and  probable 
shipping  needs  of  every  important  trade  area.  Furthermore,  the  Shipping 
Board  should  not  hesitate  to  place  its  vessels  in  trades  in  which  profitable  op- 
eration is  not  yet  possible.  In  these  ways  the  possibility  of  line  services  will 
be  thoroughly  cultivated  and  the  permanent  establishment  of  our  merchant 
marine  promoted. 

Ship  Subsidies  Limited  to  Mail  and  Specialized  Services: 

The  importance  of  subsidies  and  subventions  in  the  development  of  for- 
eign merchant  marines  has  been  exaggerated.  Rfeight  services  have  never 
received  substantial  Government  aid,  and  many  of  the  most  successful  passen- 
ber  services — e.  g.,  those  of  the  White  Star  Line  and  the  Hamburg-American 
Line — have  developed  without  direct  financial  assistance.  For  the  most  part, 
subsidies  have  been  granted  to  (1)  foster  regular  steamship  conneTctions  be- 
tween colonies  and  mother  country;  (2)  maintain  fast  mail  schedules;  and  (3) 
encourage  the  building  of  ocean  greyhounds  for  possible  admiralty  uses.  In 
the  United  States  the  only  direct  Government  grants  have  been  of  mail  sub- 
ventions. These  have  played  no  significant  part  in  the  history  of  the  Amer- 
ican merchant  fleet.  Jn  general,  merchant  marines  have  waxed  and  waned 
in  response  to  underlying  economic  forces;  not  in  answer  to  Government  aid. 

It  would  be  the  height  of  folly  to  assume  that  subsidies  will  keep  the 
American  merchant  marine  successfully  upon  the  high  seas  if  economic  and 
commercial  forces  are  unfavorable.     There  may  be  good  reasons  for  granting 

145 


subventions  to  mail  and  passenger  services  which  seem  particularly  important 
to  the  immediate  future  of  our  foreign  trade.  Thus,  better  passenger  accom- 
modations to  South  America  cannot  be  too  speedily  provided.  But  to  a  policy 
of  permanent  and  general  subsidy  there  are  insuperable  objections:  (1)  in  the 
present  state  of  official  ignorance,  the  amount  of  aid  required  in  any  given 
trade  is  wholly  indeterminate;  (2)  under  these  circumstances  the  temptation 
to  political  intrigue  is  irresistible;  (3)  there  are  no  natural  Kmits  to  the  policy 
of  subsidy  once  it  is  adopted ;  (4)  the  subsidy  policy,  by  putting  a  premium  on 
political  influence,  discourages  the  business  efficiency  upon  which  the  public 
interest  ultimately  rests;  (5)  finally,  experience  in  other  countries  indicates 
that  subsidies  do  not  permanently  prevent  underlying  economic  factors  from 
i"endering  final  judgment  on  a  nation's  competence  to  carry  on  ocean  trans- 
portation. The  American  merchant  marine  cannot  be  firmly  founded  on  ship 
subsidies.  They  should  not  be  granted  by  the  Federal  Government  except  for 
the  carrying  of  the  mails  and  other  highly  specialized  services. 

Ocean  Freight  Rates  Ordinarily  Left  to  Competition: 

Ocean  freight  rates  ordinarily  have  been  free  from  Government  regulation. 
Rates  upon  tramp  traffic  have  always  been  sensitively  competitive,  rising  and 
falling  sharply  with  the  relative  demand  and  supply  of  ships.  Rates  upon  line 
traffic  have  been  steadied  by  numerous  shipping  conferences  and  agreements, 
but  have  shown  over  the  years  the  same  general  upward  and  downward  move- 
ments. Normally,  the  guarantee  of  fair  and  reasonable  shipping  rates  has  been 
left  entirely  to  competition;  governments  have  attempted  no  control. 

Regulated  During  War: 

During  the  war,  the  exact  opposite  became  the  rule :  toward  the  end  not 
a  charter  was  made,  not  a  rate  specified,  without  the  approval  of  Govern- 
ment. This  condition  was  brought  about  chiefly  through  the  requisitioning 
of  ocean-going  tonnage.  By  the  middle  of  1917  all  British  vessels  of  over  500 
gross  tons  were  under  requisition  at  the  official  Blue  Book  rates.  The  United 
States  Shipping  Board  requisitioned  American  tonnage  under  an  order  effect- 
ive October  15,  1917 :  all  steel,  power-driven  cargo  vessels  of  2,500  deadweight 
tons  or  over  and  all  passenger  vessels  of  2,500  gross  tons  register  suitable  for 
foreign  service  were  brought  under  complete  Government  control.  In  addi- 
tion, both  American  and  British  governments  employed  their  control  of  bunker 
coal  to  compel  neutral  vessels  to  accept  charters  involving  specified  rates  and 
trades.  American  sailing  vessels  and  smaller  steamers  were  similarly  brought 
to  temis.  The  general  result  was  that  the  great  bulk  of  cargo  carrying  in 
1918  was  done  at  fixed  or  maximum  rates  prescribed  by  the  American  and  Brit- 
ish governments. 

Freely  Competitive  Condition  to  Be  Restored: 

With  the  gradual  release  of  tonnage  after  the  signing  of  the  armistice, 
competitive  freight  rates  again  became  important.  Ships  still  under  Govern- 
ment requisition  transacted  business  at  the  official  rates;  others  accepted  car- 
goes only  at  the  much  higher  figures  which  shippers  were  ready  to  pay.  The 
summer  of  1919  saw  freight  rates  generally  restored  to  a  competitive  basis. 
Upon  the  whole,  there  is  no  disposition  to  continue  Government  control.  Un- 
fairly discriminating  practices  should  be  prohibited;  but  the  general  settle- 
ment of  rates  should  be  left  to  competitive  forces. 

146 


Shipping  Conferences  and  Agreements  Hitherto  the  Rule: 

Competition  between  companies  operating  regular  steamship  service  has 
frequently  engendered  destructive  rate  wars.  To  keep  rivalry  within  reason- 
able bounds,  the  larger  companies  have  been  accustomed  to  enter  shipping 
conferences  and  agreements.  These  have  covered  such  matters  as  divisions 
of  traffic  or  territory,  pools  of  freight  money,  fixed,  maximum  or  differential 
rates.  Attempts  to  break  into  trades  controlled  by  powerful  conferences  have 
been  met  at  times  by  fighting  ships.  If  the  outside  competition  has  proved 
strong,  rate  wars  have  developed  and  the  outsider  has  been  forced  to  the 
wall  or  admitted  ultimately  to  the  conferences.  Powerful  conference  control, 
broken  by  occasional  rate  warfare,  has  been  during  recent  years  the  usual  con- 
-dition  of  the  line  services. 

To  Be  Accepted  in  Principle: 

Undoubtedly  the  natural  inclination  of  Americans  is  unfavorable  to  pools 
and  agreements  restraining  competition.  But  where  unrestricted  competition 
is  destructive,  as  experience  has  shown  it  to  be  in  both  railroading  and  ship- 
ping, enforced  competition  is  not  in  the  public  interest.  Reasonable  stabiliza- 
tion is  desired  by  shipper  and  shipping  company  alike.  Of  course,  the  meas- 
ures and  devices  of  unfair  competition,  such  as  the  fighting  ship,  are  not  to  be 
tolerated.  They  should  be  definitely  proscribed  by  law.  But  wise  public  pol- 
icy will  accept  in  principle  the  shipping  conference  and  agreement.  If  this  be 
done  it  will  be  reasonable  to  require  that  the  terms  of  the  conference  or  agree- 
ment be  reported  to  the  Government.  Failure  to  report  should  be  heavily 
penalized  and  American  companies  should  be  forbidden  to  enter  any  confer- 
ence and  agreements  the  terms  of  which  are  not  fully  reported.  More  pro- 
hibitive measures  may  well  await  convincing  evidence  that  the  agreements 
cannot  be  made  consistent  with  farsighted  public  policy. 

There  is  no  mistaking  the  parentage  of  the  present  shipbuilding  industry 
in  the  United  States ;  it  is  clearly  one  of  the  many  legitimate  offspring  of  the 
World  War.    But  its  future  nevertheless  is  dubious. 

No  Attempt  to  Preserve  Wooden  Shipbuilding  Industry: 

Wood  shipbuilding  in  particular  presents  a  forlorn  picture.  The  bitter 
wrangle  which  enveloped  its  early  days  has  been  followed  by  one  misfortune 
after  another.  Excessive  standardization  kept  the  vessels  from  being  cheaply 
built,  and  green  hands  and  green  timber  kept  them  from  being  well  built. 
When  finally  delivered,  they  proved  of  doubtful  value  even  under  the  stress 
of  war.  They  may  have  served  to  convince  the  enemy  of  our  determination 
to  build  ships  at  whatever  cost  and  of  whatever  material,  but  they  did  not 
serve  to  carry  goods.  Since  the  .signing  of  the  armistice,  they  have  been  a 
drug  upon  the  market  and  have  been  sold  only  by  reducing  the  price  to  not 
more  than  two-fifths  of  their  cost.  No  one  acquainted  with  shipping  or  sliip- 
building  counsels  any  'serious  attempt  to  maintain  the  wood  shipbuilding  in- 
dustry of  this  country.  The  annual  building  capacity  of  over  two  million 
deadweight  tons,  created  during. the  war,  will  undoubtedly  soon  disappear. 
Much  of  it  has  already  gone. 

Expansion  of  Steel  Yards  During  War: 

The  steel  yards  offer  a  much  more  difficult  problem.  They  represent  an 
enormous  investment  undertaken,  in  large  part,  with  definite  encouragement 

147 


and  financial  aid  from  the  Federal  Government.  An  idea  of  the  extraordi- 
nary expansion  of  the  industry  may  be  gained  from  the  fact  that  on  May  1, 
1919,  223  shipyards  of  1,122  ways  had  held  contracts  from  the  Emergency 
Fleet  Corporation,  whereas  only  130  yards  of  398  ways  were  in  existence  in 
the  United  States  when  the  country  entered  the  war  in  April,  1917.  In  the 
spring  of  1919  the  steel  shipbuilding  capacity  of  the  country  was  about  7,500,- 
000  deadweight  tons  a  year.  An  industry  of  tremendous  proportions  thus  had 
developed  in  the  course  of  a  few  months.  It  had  sprung  up  under  the  strong 
stimulus  of  war  necessity;  not  under  the  steady  inducement  of  commercial 
gain.  There  is  therefore  no  guarantee  that  it  could  withstand  peacetime  com- 
petition witji  foreign  yards  unless  given  material  aid  by  the  Federal  Govern-^ 
ment. 

Government  Policy  Toward   Steel   Shipbuilding  Industry: 

Such  aid  is  not  to  be  expected.  Undoubtedly  the  shipbuilding  companies 
have  reason  to  feel  that  they  have  not  been  generously  dealt  with  since  the 
signing  of  the  armistice.  If  they  had  been  allowed  to  take  building  contracts 
on  foreign  account  they  could  have  obtained  much  profitable  business  and 
made  some  headway  in  establishing  themselves  on  a  permanent  peacetime  ba- 
sis. Prevented  from  taking  such  foreign  contracts,  as  they  were  for  several 
months,  the  yards  find  themselves  confronted  with  an  appalling  decline  of  bus- 
iness as  the  program  of  the  Emergency  Fleet  Corporation  nears  completion 
during  the  next  few  months.  There  is  little  prospect  of  any  further  financial 
aid  from  the  Government.  Conversion  of  one  or  two  of  the  large  fabricating 
plants  to  other  uses  than  shipbuilding  may  alleviate  the  situation.  The  ex- 
traordinary increases  in  shipbuilding  costs  abroad  may  enable  American  yards 
to  compete  more  successfully  than  would  have  been  possible  before  the  war,  but 
the  chances  are  that  a  substantial  part  of  the  shipbuilding  capacities  devel- 
oped in  the  United  States  during  the  war  will  have  to  be  rapidly  abandoned, 
and  the  cost  of  this  part  of  our  industrial  equipment  written  off  against  the 
war. 


148 


The  Railroad  Problem 


Report  of  Sub-Committee 


ALBERT  B.  CUMMINS 

Chairman 


EMORY  R.  JOHNSON 

Stajf  Assistant 


THE  RAILROAD  PROBLEM 

Return  of  railroads  to  corporate  operation — the  Transportation  Act  of  1920 
should  be  accepted  and  carried  out — Re-establishment  of  railroad  credit — The 
rules  of  **rate-making" — Rate  regulation  in  the  future — Settlement  of  disputes 
as  to  working  conditions  and  wages — Extending  and  unifying  the  American 
transportation  system — Grouping  or  consolidation  of  railroads — Question  of 
federal  incorporation — Preserving  the  powers  of  the  states — Summary  of  na- 
tional railroad  policy. 

Return   of  Railroads  to  Corporate  Operation. 

The  railroads  have  been  returned  to  their  corporate  owners  for  operation. 
They  were  taken  over  and  run  by  the  government  for  a  period  of  twenty-six 
months,  this  having  been  considered  to  be  a  necessary  war  measure.  Opinions 
differ  as  to  whether  it  was  wise  for  the  government  to  operate  the  railroads 
or  whether  better  results  could  have  been  secured  by  Vesting  in  a  committee, 
representing  the  railroad  systems,  powers  adequate  to  the  unified  and  unham- 
pered operation  of  the  railroads.  In  any  event  a  continuance  of  government 
operation  in  peace  time  was  not  desired  by  the  public  generally,  and  the  country 
felt  relieved  when  Congress  decided  to  return  the  railroads  to  their  owners  for 
operation. 

The  Transportation   Act  of   1920   Should   Be  Accepted  and  Carried  Out. 

The  Transportation  Act  of  1920,  enacted  just  at  the  close  of  February,  de- 
termines the  conditions  under  which  private  operation  shall  be  carried  on  in  the 
future.  The  law  is  a  comprehensive  one  containing  many  new  principles  of 
regulation,  the  adoption  of  which  has  been  made  clearly  necessary  to  meet  the 
conditions  consequent  upon  the  war.  It  would  have  been  fatal  for  the  govern- 
ment to  have  returned  the  railroads  to  their  owners  to  be  operated  under  the 
laws  prevailing  before  the  war.  New  conditions  create  new  times,  and  laws  must 
harmonize  with  the  present  situation. 

The  law  that  has  been  enacted  for  future  regulation  of  the  railroads  was 
under  consideration  for  many  months.  Congress  and  the  public  generally  for 
nearly  a  year  weighed  the  merits  of  difl'erent  measures  and  plans  for  the 
future  regulation  of. carriers  by  rail,  and  the  Act  of  1920,  which  like  all  great 
measures  is  necessarily  a  compromise,  and  which  contains  provisions  that  are 
probably  not  approved  by  different  individuals  and  interests,  ought  to  be 
accepted  by  everybody.  All  parties  in  interest,  the  carriers,  the  employees 
and  the  public,  should  heartily  cooperate  in  making  a  success  of  the  private 
operation  of  the  railroads  under  the  provisions  of  the  new  statute.  The  time 
for  debate  is  passed;  cooperative  action  is  the  need  of  the  hour. 

Re-establishment  of   Railroad  Credit.     , 

The  core  of  the  Transportation  Act  of  1920  is  to  be  found  in  the  financial 
sections  of  the  measure.  It  was  in  connection  with  these  provisions  of  the  law 
that  the  most  earnest  and  prolonged  debate  took  place.  When  it  was  decided 
that  the  companies  instead  of  the  government  were  to  operate  the  railroads 
in  the  future,  and  were  to  be  responsible  for  the  efficient  performance  of  the 
transportation  service  and  the  adequate  development  of  facilities,  it  was  recog- 

151 


nized  that  the  credit  of  the  carriers  must  be  re-established  and  stabilized.  It 
needed  no  argument  to  prove  that  unless  the  railroad  companies  could  secure 
from  the  public  adequate  capital  at  reasonable  rates  of  interest  or  dividends 
they  could  not  give  the  country  the  transportation  service  it  imperatively  needed, 
and  private  management  must  necessarily  fail,  and  that  it  would  become  neces- 
sary for  the  government  either  to  give  aid  to  the  companies  or  to  purchase  the 
railroads  and  operate  them  as  a  government  function.  In  other  words  the  chief 
aim  of  ,the  Act  is  not  only  reasonable  regard  for  the  rights  of  invested  capital, 
but  to  enable  privately  capitalized  corporations,  operating  under  governmental 
restrictions,  to  furnish  adequate  transportation  to  meet  the  country's  needs. 

The  principle  followed  in  framing  the  financial  provisions  of  the  Transpor- 
tation Act  of  1920  was  to  declare  by  statute  that  the  railroads  were  entitled  to 
a  reasonable  return  upon  a  fair  value  of  the  property  devoted  to  the  public 
service,  and  that  the  Interstate .  Commerce  Commission  should  initiate  or 
authorize  rates  designed  to  yield  this  reasonable  return.  The  law  contains 
this  "rule  of  rate-making,"  which  is  now  established  by  statutory  authority 
and  is  binding  upon  the  commission  which  acts  for  the  government  and  the 
public  in  regulating  the  carriers. 

"The  Rule  of  Rate-Making." 

The  rule  of  rate-making  in  the  Transportation  Act  of  1920  not  only  estab- 
lishes the  new  principle  that  a  fair  return  shall  be  a  reasonable  income  upon 
the  value  of  the  property  of  the  carriers,  but  also  provides  against  excessive 
profits  on  the  part  of  any  exceptionally  favored  railroad  company.  The  theory 
of  the  law  is  that  all  railroad  companies,  that  is,  their  stockholders  and  cred- 
itors, shall  receive  a  reasonable  but  not  excessive  return  upon  their  property. 
The  railroads  are  public  utilities.  They  are  in  a  different  category  from  purely 
private  enterprises.  All  carriers  are  entitled  to  a  fair  return.  None  should 
receive  unreasonably  large  returns,  hence  the  rule  of  rate-making  provides  that 
carriers  whose  net  operating  income  exceeds  six  per  cent,  per  annum  upon  the 
value  of  their  property  shall  devote  half  of  the  excess  above  six  per  cent,  to 
building  up  a  company  reserve  fund  until  that  fund  reaches  five  per  cent,  of 
the  value  of  the  company's  property,  and  shall  turn  over  the  remaining  half 
of  the  excess  profits  to  the  Interstate  Commerce  Commission  which  shall  main- 
tain a  general  railroad  contingent  fund  that  may  be  used  to  make  loans  upon 
good  security  to  companies  needing  capital,  or  may  be  used  to  add  to  equip- 
ment or  other  facilities  that  may  be  leased  to  individual  railroad  companies. 

The  income  which  railroad  companies  as  a  whole  are  to  have  during  the 
next  two  years  has  been  fixed  at  five  and  one-half  per  cent.,  in  addition  to  which 
one-half  per  cent,  may  be  allowed  for  betterments  and  improvements  in  the  dis- 
cretion of  the  Commission,  and  for  the  same  period  individual  companies  may 
retain  an  income  of  six  per  cent,  per  annum  upon  the  value  of  their  property.  At 
the  end  of  two  years  the  Interstate  Commerce  Commission  is  to  decide  whether 
this  rate  of  return  is  excessive  or  inadequate,  and  to  fix  the  return  for  the 
future. 

It  should  be  noted,  however,  that  this  "rule  of  rate-making"  is  not  a  govern- 
ment guaranty,  not  even  in  connection  with  the  5V2%  basis.  It  is  not  a  guaranty 
(1)  because  the  government  resumes  no  responsibility  for  the  payment  of  any 
sum  of  money  to  the  railroad  companies,  and  (2)  because  in  performing  its  du- 
ties the  Interstate  Commerce  Commission  must  estimate  for  a  future  period  the 
volume  of  traffic  and  the  cost  of  maintenance  and  operation,  and  these  uncer- 

152 


tain  elements  necessarily  remove  the  provision  from  the  field  of  a  government 
guaranty.  It  is  the  purpose,  of  course,  that  the  rates  shall  be  sufficient,  so  far 
as  the  Commission  can  foresee,  to  yield  a  net  operating  income  of  51/2%,  and 
after  two  years  have  passed  that  they  shall  yield  a  reasonable  or  fair  return. 

Paragraph  6  of  Section  418  amending  Section  15  of  the  Interstate  Com- 
merce Act  gives  the  Commission  authority  to  prescribe  divisions  of  joint  rates 
either  upon  complaint  or  upon  its  own  initiative.  It  also  prescribes  certain  con- 
siderations that  must  be  kept  in  mind  by  the  Commission  in  determining  these 
divisions.  The  paragraph  is  of  particular  interest  to  the  eight  or  nine  hundred 
short-line  railroads,  constituting  gome  30,000  miles  of  the  total  mileage  of  the 
United  States,  and  representing  two  billions  of  dollars  in  investments. 

Rate  Regulation  in  the  Future. 

The  new  act  makes  more  definite  the  power  of  the  Interstate  Commerce  Com- 
mission over  rates,  although  the  only  change  in  the  principle  of  regulation  is 
that  just  explained  as  having  been  made  by  the  adoption  of  the  "rule  of  rate- 
making."  In  general  the  Commission  is  now  responsible  for  the  revenues  of 
the  carriers  as  a  whole.  The  Government,  which,  by  the  requirements  it 
imposes  upon  carriers,  and  by  its  indirect  or  direct  determination  of  wages, 
largely  influences  the  necessary  expenses  of  the  carriers,  must  assist  them  to 
secure  though  it  does  not  guarantee  adequate  revenues.  Incidental  to  the  carry- 
ing out  of  this  policy  of  assuring  the  carriers  rates  and  revenues  that  will  yield 
such  a^  return  upon  the  value  of  carriers*  property  as  Congress  has  deemed  to  be 
just,  the  Commission  has  been  given  statutory  authority  to  prevent  the  reduction 
of  the  revenues  of  the  carriers  by  action  of  the  states  fixing  rates  on  traffic  within 
the  states  so  low  as  to  affect,  if  not  indirectly  to  control,  interstate  rates. 
From  now  on  no  state  may  maintain  rates  that  establish  an  unjust  discrimi- 
nation as  between  the  rates  within  and  between  the  states.  In  placing  this 
limitation  upon  the  control  of  rates  by  the  several  states.  Congress  has  put 
into  the  statute  the  principles  that  have  been  established  by  the  Supreme  Court 
in  various  decisions ;  and,  without  improperly  trenching  upon  the  powers  of  the 
states,  has  adopted  a  policy  of  rate  regulation  by  federal  authority  that  will 
do  much  to  simplify  and  unify  rate  making  by  the  carriers  and  rate  regulation 
by  the  government. 

Settlement  of  Disputes  as  to  Working  Conditions  and  Wages. 

Congress  has  sought  by  the  Act  of  1920  to  provide  new  and  adequate 
agencies  for  the  adjustment  of  disputes  as  to  working  conditions  and  wages  of 
railway  employees.  The  measures  adopted  by  Congress  are  a  compromise  be- 
tween the  extreme  views  of  those  that  favor  making  strikes  in  the  railway 
business  unlawful  and  of  those  who  propose  to  leave  the  future  adjustment  of 
working  conditions  and  wages  to  be  determined  solely  by  the  employees  and 
the  carriers,  without  the  participation  by  the  public  in  the  settlement  of  dis- 
putes, and  the  determination  of  wages.  The  Act  of  1920  specifically  provides 
that,  whenever  possible,  questions  involving  working  conditions  and  wages 
shall  be  settled  by  negotiation  of  employees  and  employers.  When  a  harmoni- 
ous agreement  as  to  working  conditions  cannot  be  reached,  the  dispute  shall 
be  referred  to  a  railroad  board  of  labor  adjustment,  composed  of  an  equal 
number  of  representatives  of  the  carriers  and  the  employees,  which  may  be 
either  a  local  board  dealing  with  local  questions,  or  a  board  whose  jurisdic- 
tion may  be  wider  or  even  national  in  scope.    Controversies  as  to  wages  that 

153 


cannot  be  settled  by  negotiation  of  the  parties  in  interest  shall  be  referred  to  the 
railroad  labor  board,  which  is  a  single  board  functioning  for  the  entire  country. 
This  body  consists  of  nine  members,  three  representing  the  public,  three  the 
carriers  and  three'  the  employees.  The  decisions  of  the  boards  are  morally 
binding  upon  the  parties,  but  are  not  made  enforceable  by  statutory  penalties. 
Public  sentiment  is  relied  upon  to  secure  the  acceptance  of"  the  decisions  ol 
these  boards. 

Extending  and  Unifying  the  American  Transportation  System. 

In  the  past  many  railroads  have  been  built  as  speculative  enterprises.  In 
the  future  only  those  roads  are  to  be  constructed  and  only  those  terminals  are 
to  be  built  that  are  considered  by  the  Interstate  Commerce  Commission  to  be 
a  public  necessity.  A  carrier  proposing  to  build  a  new  road  or  extend  its  lines 
or  to  lay  out  money  for  terminals  is  required  to  receive  from  the  Commission 
a  certificate  of  public  convenience  or  necessity. 

This  new  policy  on  the  part  of  the  federal  government  will  not  only  pro- 
tect the  public  against  unwise  expenditure  of  funds,  but  will  enable  the  govern- 
ment acting  through  the  Commission  to  bring  about  the  systematic  and  unified 
development  of  the  entire  system  of  railroad  transportation.  By  passing  judg- 
ment upon  the  proposed  expenditures,  the  Commission  may  also  gradually 
accomplish  the  unification  of  the  railroad  system  of  the  country  as  a  whole. 
In  course  of  time  American  railroads,  although  owned  by  many  companies, 
will  be  so  connected  as  regards  tracks  and  terminals  as  to  cause  all  railroads 
to  be  parts  of  a  unified  national  system. 

The  system  thus  connected  and  unified  may  be  coordinated  with  the  water- 
ways by  requiring  physical  connection  of  the  facilities  of  rail  and  water  car- 
riers and  by  the  adoption  of  measures  tending  to  bring  about  the  development 
of  transportation  in  increasing  volume  on  inland  lakes,  rivers  and  canals.  In 
addition  to  bringing  about  the  physical  connection  of  carriers  by  rail  and  by 
water,  the  Commission  may  establish  through  routes  and  fix  joint  rates  by  rail 
and  water  lines,  and  thus  establish  in  the  United  States  a  unified  system  of 
rail  and  water  transportation. 

Grouping   or   Consolidation   of  Railroads. 

The  Interstate  Commerce  Commission  is  to  prepare  a  plan  for  the  grouping 
or  consolidation  of  the  many  railroad  systems  of  the  United  States  into  a 
limited  number  of  large  competing  systems  of  approximately  equal  strength. 
The  law  contemplates  the  gradual  bringing  together  of  the  railroads  into  a 
comparatively  small  number  of  systems  that  can  "employ  uniform  rates  in 
the  movement  of  competitive  trafl[ic  and  under  eflficient  management  earn  sub- 
stantially the  same  rate  of  return  upon  the  value  of  their  respective  railway 
properties."  At  present  there  are  strong  systems  side  by  side  with  the  lines 
of  struggling  companies  that  are  either  insolvent  or  barely  capable  of  keeping 
their  heads  above  water.  It  is  proposed  to  make  it  advantageous  for  the  strong 
companies  to  acquire  the  "weak  sisters" ;  and  this  is  to  be  done  in  accordance 
with  the  plan  worked  out  by  the  Commission  in  the  public  interest.  The  prin- 
ciple of  competition  is  to  be  maintained,  and  the  permanent  large  systems  of  the 
future,  established  by  a  process  of  evolution  through  voluntary  action  of  the 
carriers,  are  to  be  of  a  relatively  equal  strength,  each  system  able  to  perform 
its  services  efficiently  and  develop  its  lines  in  accordance  with  the  needs  of  the 
territory  served. 

154 


The  Question  of  Federal  Incorporation. 

Whether  the  enlarged  raih'oad  systems  of  the  future  shall  be  required  to 
take  out  federal  charters,  thus  changing  their  corporate  allegiance  from  the 
states  to  the  United  States,  is  a  question  that  has  been  left  undecided  by  Con- 
gress. In  framing  the  Transportation  Act  of  1920,  it  was  found  that  public 
opinion  was  not  yet  definitely  defined  on  this  important  question  of  federal  in- 
coiporation  of  railroads  engaged  in  interstate  commerce.  This  is  a  complicated 
question  of  which  the  public  will  make  careful  study  during  the  next  few 
years.  Eventually  the  decision  must  be  made  whether  the  great  interstate  car- 
riers by  rail  shall  be  state  or  federal  corporations. 

Preserving  the  Powers  of  the  States. 

Should  the  public  decide  to  require  railroads  engaged  in  interstate  com- 
merce to  take  out  federal  charters,  Congress  will  be  certain  to  adopt  whatever 
measures  may  be  necessary  and  adequate  to  protect  the  powers  of  the  states, 
especially  as  regards  taxation  and  local  police  regulation.  The  states  form  an 
essential  and  extremely  Useful  part  of  the  governmental  system  of  the  country 
as  a  whole,  and  while  it  is  inevitable  that  the  powers  of  the  federal  govern- 
ment should  increase  as  production  and  transportation  become  less  local  and 
more  national  and  international  in  scope,  it  would  be  unwise  to  take  from  the 
states  any  powers  they  may  exercise  with  benefit  to  the  public.  The  United 
States  is  a  federal  system,  and  the  component  parts  of  the  system,  the  several 
states,  should  continue  to  function  largely  in  the  affairs  of  government. 

Summary  of  National  Railroad  Policy. 

The  foregoing  brief  statement  of  the  railroad  problem  and  of  the  policy 
which  the  Transportation  Act  of  1920,  enacted  by  a  Repubhcan  Congress,  has 
embodied  in  law  for  the  regulation  of  railroads  may  be  summarized  as  follows : 

First.  The  transportation  of  persons  and  property  by  a  common  carrier  is 
essentially  a  public  business  and  it  is  the  duty  of  the  federal  and  state  govern- 
ments, within  their  respective  powers,  to  adopt  and  enforce  measures  that  will 
insure  adequate  transportation  service  both  for  the  present  and  future  needs  of 
the  people  of  the  United  States  at  the  lowest  practicable  cost. 

Second.  In  view  of  the  conditions  prevailing  in  this  country,  the  experi- 
ence of  the  last  two  years,  and  the  conclusions  which  may  be  fairly  drawn  from 
an  observation  of  the  transportation  systems  of  other  countries,  it  is  clear  that 
this  duty  can  be  performed  more  certainly,  economically  and  efficiently  through 
private  ownership  and  operation,  under  proper  regulation  and  control,  than 
through  government  ownership  and  operation,  or  employee  operation. 

Third.  There  should  be  no  speculative  profit  in  rendering  the  service  of 
transportation,  but  in  order  to  do  justice  to  the  capital  already  invested  in  rail- 
way enterprises,  to  restore  railway  credit,  and  to  induce  future  investments  at 
a  low  rate,  a  fair  return  upon  the  actual  value  of  the  railway  property  used  in 
transportation  should  be  made  reasonably  sure.  All  issues  of  railroad  securities 
should  be  regulated  by  the  Interstate  Commerce  Commission. 

Fourth.  Producers  and  distributors,  and  especially  those  engaged  in  agri- 
cultural and  horticultural  pursuits,  are  vitally  interested  in  regular,  continuous 
and  prompt  service,  and  this  can  only  bs  accomplished  by  adding  greatly  to  the 
existing  equipment  facilities.  The  car  and  engine  shortage  of  the  past  two 
years,  or  more,  has  inflicted  incalculable  injury  upon  commerce,  and  the  rail- 

155 


way  facilities  in  the  United  States  must  speedily  be  enlarged  to  meet  the  re- 
quirements of  a  constantly  developing  production  and  distribution. 

Fifth.  When  the  government  undertakes  to  do  full  justtce,  in  wages  and 
working  conditions,  to  the  employees  of  tjansportation  companies  by  adjudi- 
cating in  an  impartial  tribunal  under  humane  and  enlightened  rules,"  the  dis- 
putes which  arise  between  them  and  their  employers,  the  decision  of  the  gov- 
ernment should  be  accepted  by  both  sides  to  the  controversy. 

The  following  have  been  submitted  as  alternative  proposals  in  the  forego- 
ing summary  by  Mr.  J.  G.  Luhrsen,  president  of  American  Train  Dispatchers' 
Association,  a  member  of  the  sub-committee: 

(Substitute  for  Paragraph  Second) 

In  view  of  the  conditions  prevailing  in  this  country,  the  experience  of  the 
last  two  years,  and  the  clearly  demonstrated  desire  of  a  large  portion  of  the 
populace,  it  is  clear  that  this  duty  can  be  performed  more  certainly,  econom- 
ically and  efficiently  through  government  ownership  and  operation  than  through 
private  ownership  and  operation,  even  under  government  regulation  and 
control. 

(Substitute  for  Paragraph  Fifth) 

When  the  government  undertakes  .to  do  full  justice,  in  wages  and  working 
conditions,  to  the  employees  of  transportation  companies  by  adjudicating  in  an 
impartial  tribunal,  under  humane  and  enlightened  rules,  the  disputes  which 
arise  between  them  and  their  employers,  the  decision  of  the  government  should 
be  accepted  by  both  sides  to  the  controversy^but,  the  full  liberty  of  the  em- 
ployees, individually  or  collectively,  to  cease  work  at  their  own  will  must  be 
scrupulously  preserved,  as  a  safeguard  to  insure  an  impartial  adjudication. 


156 


Social  Problems 


Report  of  Sub-Committee 


WILLIAM  ALLEN  WHITE 

Chairman 


SOCIAL  PROBLEMS 

Child  Labor — Prohibition  of  night  work  for  children  under  sixteen  in  fac- 
tories and  stores — Maximum  working  hours  for  children  under  sixteen  in  fac- 
tories and  stores — Women  in  Industry — Equal  pay  for  equal  work — Protection 
for  Maternity — Activities  of  the  States  and  in  other  countries  for  maternity 
protection — Federal  Employment  Agency — Social  Insurance— Housing  of  wage- 
earners — The  Negro  problem. 

Most,  if  not  all,  of  the  social  problems  considered  by  this  sub-committee 
are  matters  chiefly  of  state  or  local  governmental  function  or  concern,  and  with 
which  federal  legislation  can  deal  only  indirectly  or  in  part.  They  do,  however, 
affect  the  welfare  and  interests  of  the  nation  as  a  whole,  and  there  is  no  doubt 
that  the  Republican  party,  speaking  nationally,  is  distinctly  friendly  and  un- 
questionably progressive  in  its  attitude  and  in  its  support  of  protective  stand- 
ards and  federal  encouragement  of  the  nation-wide  adoption  of  the  legislation 
in  the  states  having  the  best  standards,  and  of  federal  action  in  harmony 
therewith,  wherever  there  is  federal  jurisdiction  and  wherever  federal  action 
is  possible  and  appropriate. 

CHILD  LABOR 

In  child  labor  legislation  the  Republican  Party  has  been  especially  alert  to 
protect  children  in  industry.  In  forty-six  states  in  which  employment  of  chil- 
dren under  fourteen  years  of  age  in  industry  has  been  prohibited,  thirty  were 
Republican  and  sixteen  Democratic  at  the  time  the  legislation  was  enacted ; 
and  in  four  of  these  in  which  higher  age  limitations  are  established,  three 
were  Republican  and  one  Democratic. 

Forty-two  states  of  the  Union  have  laws  prohibiting  night  work  on  the  part 
of  children.  An  analysis  of  the  laws  of  those  states  shows  that  the  Republican 
party  has  taken  the  lead  in  this  humanitarian  step  toward  the  conservation  and 
protection  of  youth,  as  twenty-eight  of  these  states  were  Republican,  as  against 
fifteen  Democratic  states. 

Twenty-four  states  have  adopted  legislation  making  the  maximum  number 
of  working  hours  for  children  under  sixteen  years  of  age  in  factories  and  stores 
not  more  than  eight  hours  per  day  nor  more  than  forty-eight  hours  a  week 
without  "exemptions."  Fourteen  of  the  states  leading  in  this  protective  legis- 
lation were  Republican,  as  against  eight  Democratic  states. 

Seven  additional  states  have  a  similar  provision  with  respect  to  the 
working  hours  of  children  under  sixteen  years  of  age,  but  with  certain  "ex- 
emptions.".   Five  of  these  were  Republican  and  two  Democratic. 

The  Republican  Party  has  been  equally  active  and  has  assumed  leader- 
ship in  the  protection  of  childhood  in  federal  legislation.  The  64th  Congress 
passed  an  act  prohibiting  the  transportation  in  interstate  commerce  of  the 
products  of  child  labor,  manufactured  or  mined  by  the  labor  of  children  em- 
ployed contrary  to  the  highest  standards  with  respect  to  age,  hours  of  work 
and  night  work  as  expressed  in  the  legislation  of  the  various  states.  This 
legislation  followed  the  general  principle  relied  upon,  in  other  matters  where- 
by Congress  has  sought  to  supplement  and  to  make  state  legislation  effective 
through  the  exercise  of  its  exclusive  right  to  regulate  commerce.     The  Act 

159 


was  approved  by  the  President,  Sept.  1,  1916,  and  went  into  effect  Sept.  1, 
1917. 

The  strong  protective  position  of  the  Republican  Party  in  Congress  is 
shown  when  it  is  remembered  that  the  64th  Congress  was  strongly  domi- 
nated by^  the  Democratic  Party,  there  being  227  Democratic  members  as 
against  199  Republicans.  The  above  described  child  labor  bill  was  reported 
out  of  the  Committee  on  Labor  by  Republican  votes,  every  Republican  mem- 
ber of  the  Committee  voting,  for  it  while  three  Democratic  members  signed 
the  Minority  Report,  opposing  the  measure. 

Spirited  debate  on  the  floor  of  the  House  of  Representatives  was  marked 
by  strong  antagonism  to  the  bill  from  southern  Democratic  Members  of  the 
House. 

On  this  important  child  labor  legislation  the  majority  of  the  Democratic 
Members  of  the  House  argued  for  protection  of  their  cotton  and  their  various 
industries,  while  the  majority  of  the  Republican  Members  argued  for  the  pro- 
tection of  children  in  labor  which,  as  Representative  Garland  showed,  really 
was  a  protection  to  industry  itself. 

The  final  vote  on  the  hill  shows  more  graphically  than  the  speeches  in  its 
behalf  how  steadfastly  the  majority  of  the  Republicans  in  Congress  upheld 
the  humanitarian  side  of  the  issue. 

Despite  the  fact  that  the  House  was  overwhelmingly  Democratic,  to  the 
Republicans  goes  the  credit  for  having  almost  unanimously  supported  the 
bill  and  constituted  the  driving  force  that  put  the  bill  through.  175  Repub- 
licans voted  for  the  bill  as  against  160  Democrats.  44  Democrats  voted 
against  the  bill  while  only  2  Republicans  opposed  it,  by  their  votes.  Three  Dem- 
ocrats were  paired,  which,  under  the  pairing  arrangement  in  the  House,  would 
make  the  number  one  hundred  and  seventy-seven  Republicans  for  the  bill.  Add- 
ing the  three  pairs  to  the  Democratic  Party  opposed  to  the  bill  shows  forty- 
seven  I)emocrats  actually  opposed  to  this  important  legislation  in  child  welfare. 

The  situation  in  the  Senate  shows  15  Republicans  and  16  Democrats  not 
voting,  and  of  the  52  votes  cast  in  favor  21  were  Republicans  and  31  Demo- 
crats, while  of  the  twelve  votes  opposed  only  two  were  Republicans  and  ten 
Democrats. 

The  U.  S.  Supreme  Court  in  the  Dagenhart  case  held  this  law  unconsti- 
tutional June  3,  1918.  The  case  was  an  action  taken  originally  in  the  demo- 
cratic state  of  North  Carolina  in  the  interest  of  the  cotton  industry,  which 
placed  the  value  of  child  labor  to  that  industry  higher  than  the  value  to  the 
nation  of  the  health  and  welfare  of  children  protected  by  the  strong  arm  of 
the  federal  government. 

Immediately  after  this  decision  efforts  were  made  to  re-enact  the  federal 
child  labor  standards,  using  the  taxing  power  of  Congress,  since  the  Supreme 
Court  held  that  the  regulation  was  not  a  valid  exercise  of  the  interstate 
commerce  power. 

Title  XH  of  the  Revenue  A,ct  of  1918,  which  became  a  law  February  24, 
1919,  was  drafted  to  provide  a  tax  on  the  employment  of  child  labor  which 
should  make  the  employment  of  children  contrary  to  the  standards  of  the 
previous  law  unprofitable  for  any  one  who  did  not  voluntarily  adopt  those 
standards.  The  standards  were  practically  the  same  as  those  in  the  first  fed- 
eral child  labor  law.  The  tax  was  an  excise  tax  equivalent  to  ten  per  centum 
of  the  net  profits  during  the  year  from  the  sale  or  disposition  of  the  work  of 

160 


any  mine,  quarry,  mill,  cannery,  workshop,  factory  or  manufacturing  estab- 
lishment which  employs  children  contrary  to  those  standards. 

The  decision  of  the  Supreme  Court  in  pending  cases  testing  the  constitu- 
tionality of  the  Federal  Child  Labor  Tax  Law  will  necessarily  affect  any  rec- 
ommendation the  committee  might  make.  There  cannot  be  at  this  time  any 
question  in  any  quarter  but  that  the  Republican  Party  stands  for  a  Federal 
Child  Labor  law*  and  for  its  rigid  enforcement,  but  until  the  Supreme  Court 
passes  upon  the  present  law,  our  attitude  in  the  matter  must,  of  course,  be  held 
in  abeyance.  If  the  Supreme  Court  should  declare  the  Federal  Child  Labor  tax 
law  unconstitutional,  we  should  seek  other  means  to  enable  Congress  to  regu- 
late and  control  child  labor.  Even  if  this  decision  makes  it  apparent  that  we 
should  need  to  amend  the  Constitution,  we  should  recommend  that  unequiv- 
ocally. 


WOMEN  IN  INDUSTRY 

That  the  employment  of  women  in  gainful  occupations  was  increasing 
more  rapidly  than  the  population  in  the  decade  before  the  last  published  census 
in  1910,  that  this  increase  was  accelerated  during  the  war,  and  that  the  response 
of  women  to  the  industrial  needs  of  the  nation  at  war  has  permanently  enlarged 
the  range  of  occupations  open  to  them,  are  the  basic  facts  about  women  in  in- 
dustry to-day.  Although  the  war  is  over,  the  economic  pressure  caused  by  the 
higher  cost  of  living  has  the  same  effect  in  drawing  more  and  more  women  into 
the  ranks  of  wage-earners. 

Clearly,  the  conditions  of  women's  work  must  be  recognized  as  fundamental 
in  their  effects  on  the  women  as  individuals  and  citizens,  and  on  the  children, 
the  homes,  and  the  family  life  of  the  nation. 

The  problems  of  women  in  industry  are  not  to  be  separated  from  conditions 
affecting  both  men  and  women.  But  the  facts  show  that  women,  also,  have  spe- 
cial problems  of  employment  which  make  necessary  for  the  present,  at  least, 
special  study  and  action. 

The  Republican  Party  has  not  been  unmindful  of  these  special  problems,  as 
a  comparison  of  the  legislation  in  Republican  states  with  that  of  Democratic  will 
show.  While  the  solution  of  these  problems  must  continue  in  the  main  to  be  for 
the  states,  there  is  one  thing  at  least  which  the  Federal  Government  can  do. 
During  the  war  a  Woman's  Bureau  was  established  in  the  U.  S.  Department 
of  Labor- to  oversee  and  to  standardize  the  conditions  of  work  in  Government 
plants  on  Government  orders.  It  seems  certain  that  the  great  increase  in  women 
workers  in  industry  during  the  war  will  result  in  proportional  increase  of 
women  in  industry  during  peace.  This  bureau  under  a  woman  chief  should  be 
"continued  and  amply  supported.  Like  the  Children's  Bureau  it  will  be  the 
source  of  information  to  the  states  and  to  Congress,  and  will  serve  to  level  up 
the  protection  for  women  in  the  country  as  a  whole.  The  expense  will  not  be 
great,  and  from  a  broad  point  of  view  the  bureau  will  be  an  etonomy.  Wise 
legislation  must  be  based  upon  facts  carefully  collected  and  considered.  The 
National  Government  with  its  broad  outlook  in  the  country,  can  better  do  this 
work  of  preparation  than  can  the  states,  and  if  it  is  well  done  in  Washington 
there  will  be  no  need  of  duplication  of  effort  in  the  48  states.  Congress  has 
already  considered  a  proposal  to  establish  a  permanent  Women's  Bureau.   The 

*  See  Republican  National  Platform,  1916: — "Wfe  favor  *  »  *  the  enactment  and  rigid  enforcement 
'it  a   Federal    Child    Labor   Law." 

161 


-    bill  (H.  R.  13299,  introduced  by  Congressman  Campbell  of  Kansas)  has  passed 
the  House  and  is  now  in  the  Senate. 

EQUAL  PAY  FOR  EQUAL  WORK 

With  increasing  participation  of  women  in  industry  the  question  of  equal 
pay  for  equal  work  is  increasingly  important,  both  to  protect  the  employment 
of  men  against  the  competition  of  lower  paid  women  workers,  and  as  a 
measure  of  simple  justice.  The  principle  of  equal  pay  for  equal  work  could 
be  more  effectively  recognized  by  the  U.  S.  Government  as  the  largest  em- 
ployer in  the  country.  There  are  certain  occupations  in  which  either  men 
or  women  should  alone  be  employed,  but  difference  of  sex  should  not  be 
the  sole  ground  for  difference  in  wages.  The  League  of  Women  Voters  at 
their  Chicago  Convention,  in  February,  1920,  made  the  following  recom- 
mendations: 

(a)  An  actual  merit  system  of  appointment  and  promotion  based  on 
qualifications  for  the  work  to  be  performed;  these  qualifications  to  be  de- 
termined in  open  competition,  free  from  special  privilege  or  preference  of 
any  kind  and  especially  from  discrimination  on  the  grounds  of  sex; 

(b)  A  reclassification  of  the  present  civil  service  upon  this  basis  with 
a  wage  or  salary  scale  determined  by  the  skill  and  training  required  for 
the  work  to  be  performed  and  not  on  the  basis  of  sex. 

Where  women  can  and  do  perform  work  of  equal  quality  and  quantity  as 
compared  with  that  of  men  under  similar  circumstances,  they  should  receive 
equal  pay.  They  should  not  be  discriminated  against  in  respect  to  opportunities 
for  training  and  advancement,  or  the  representation  of  their  interests. 

Improvement  in  the  conditions  of  industry  cannot  be  brought  about  by 
legislation  alone.  Employers,  acting  voluntarily,  and  workers  in  their  ojganiza- 
tions,  have  the  most  direct  opportunity  and  responsibility.  It  has  been  the  pur- 
pose of  labor  legislation  to  require  as  a  minimum  the  standards  already  proved 
practicable  in  the  experience  of  industry.  Labor  laws  of  this  kind  are  at 
present  considered  to  be  in  the  sphere  of  the  state  and  not  the  Federal  Govern- 
ment. 

The  recognized  authority  of  the  Federal  Government  at  present  gives  it 
power  to  improve  conditions  of  employment  for  women  through  four  distinct 
types  of  action: 

1.  By  model  labor  legislation  in  the  District  of  Columbia. 

2.  By  establishing  well-recognized  standards  of  employment  through- 
out all  branches  of  the  Federal  Government  in  which  women  are  employed. 

3.  By  stimulating  through  Federal  aid  the  adequate  development  of 
vocational  education  for  women. 

4.  By  continuous  and  adequate  investigations  of  the  conditions  of 
women's  work,  through  such  an  agency  as  the  Women's  Bureau  of  the  U.  S. 
Department  of  Labor,  in  order  that  public  opinion  may  be  informed  and 
state  legislatures,  employers  and  workers  have  suflicient  knowledge  for  in- 
telligent action. 

PROTECTION  FOR  MATERNITY 

Motherhood  is  now  one  of  the  most  hazardous  occupations  open  to  women, 
according  to  an  announcement  of  the  Federal  Children's  Bureau,     At  least 

162 


23,000  mothers  die  every  year  from  causes  due  to  childbirth.  Thousands  more 
become  permanent  invalids.  The  sacrifice  of  babies,  too,  is  appalling — at  least 
250,000  infants  under  one  year  failing  to  survive.  This  disaster  falls  most 
crushingly  upon  the  families  with  the  lowest  incomes — the  wage-earners.  And 
the  real  tragedy  is  that  it  is  largely  preventable.  Fully  half  of  this  maternal 
and  infant  mortality  will  be  abolished  through  a  comprehensive  plan  for 
maternity  protection. 

The  Federal  Children's  Bureau  states  that  20  per  cent  of  the  baby  deaths 
within  the  registration  area  occur  before  the  baby  is  forty-eight  hours  old ;  and 
the  first  month  takes  nearly  one-half  of  all  who  will  die  before  they  are  a  year 
old.  More  mothers  between  the  ages  of  fifteen  and  forty-four  die  of  causes  due 
to  childbirth  than  to  any  other  cause  except  tuberculosis,  and  the  number  of 
such  deaths  greatly  increased  in  1918.  Of  fourteen  countries  in  which  we  have 
comparable  statistics  of  maternal  mortality  the  United  States  stands  second 
from  the  bottom — only  Spain  and  Switzerland  have  a  greater  maternal  mor- 
tality.   Where  two  mothers  die  in  Sweden,  five  die  in  the  United  States. 

An  analysis  of  the  20,000  cases  recorded  with  the  Maternity  Centre  Asso- 
ciation of  New  York  City  shows  a  mortality  rate  only  one-third  to  one-half  as 
high  for  babies  and  mothers  as  in  the  country  at  large.  Similar  results  have 
been  repeatedly  achieved  elsewhere  through  similar  nursing  and  educational 
work. 

The  United  States,  however,  cannot  assume  the  duty  of  finding  and  ap- 
plying the  remedy  to  this  condition,  but  it  can  through  the  Children's  Bureau, 
lead  and  aid  the  states  in  planning  the  distribution  of  information  to  lessen 
the  infant  mortality  and  the  mortality  of  child  bearing  women. 

A  proposal  already  before  Congress  to  provide  financial  aid  to  the  states 
through  the  Children's  Bureau  for  educational  work  to  reduce  infant  mortality 
and  provide  maternity  protection,  along  the  lines  followed  in  granting  federal 
aid  in  agriculture,  for  the  improvement  of  roads  and  for  vocational  education, 
has  received  the  strong  and  united  support  of  women's  organizations  through- 
out the  country. 

ACTIVITIES  OF  THE  STATES  AND  OTHER  COUNTRIES  FOR  MATERN- 
ITY PROTECTION 

Five  states — ^New  York,  M^sachusetts,  Connecticut,  Missouri,  and  Ver- 
mont— have  forbidden  the  employment  of  women  for  periods  of  two  to  four 
weeks  after  childbirth.  Twenty-three  foreign  countries,  including  practically 
all  civilized  countries,  have  adopted  similar  legislation,  and  in  most  of  the 
countries  the  women's  places  of  employment  must  be  kept  open  for  them  dur- 
ing the  period  of  rest. 

Either  in  connection  with  health  insurance  laws  or  separately,  provision 
in  thirteen  countries  has  been  made  for  some  form  of  cash  benefit  during 
maternity  for  the  purpose  of  enabling  the  mother  to  give  up  work  during  the 
last  two  weeks  of  pregnancy  and  the  first  two  weeks  of  motherhood,  and 
medical  and  nursing  care  is  provided  for  in  the  insurance  funds  of  Norway, 
Czecho-Slovakia,  Poland,  Roumania,  and  in  some  cantons  of  Switzerland. 

FEDERAL  EMPLOYMENT  AGENCY 

The  employment  problem  is  in  part  national,  in  part  local.  The  thou- 
sands of  immigrants  arriving  at  our  seaports  cannot  be  adequately  informed 

163 


by  the  state  or  local  agencies  of  the  need  for  their  services  in  factory  or 
farm  in  states  far  removed  from  the  port  of  entry.  Particularly  is  this  true 
with  respect  to  farm  labor.  Most  of  the  immigrants  are  country  bred, 
but  instead  of  continuing  their  accustomed  work  in  America,  they  often 
throng  our  great  manufacturing  cities,  without  knowing  of  the  opportunities 
for  them  in  agriculture.  An  effective  federal  employment  office,  whose  em- 
ployees are  trained  men  and  women,  who  speak  the  language  of  the  immigrant, 
and  who  can  effectively  direct  each  individual  to  localities  where  his  strength 
is  particularly  needed,  would  render  a  great  service  to  the  farmer  and  the 
business  man  in  search  of  labor  as  well  as  to  the  immigrant. 

The  United  States  has  recognized  the  need  for  a  national  employment 
office  for  immigrants  by  creating  a  service  in  the  Bureau  of  Immigration, 
and  an  attempt  was  also  made  to  make  the  post  offices  labor  information  bu- 
reaus. No  sufficient  organization  was  created,  and  no  trained  men  put  in 
charge  of  the  work,  so  that  the  effort  was  not  a  success  as  is  shown  by  the 
fact  that  the  total  placements  through  the  post  office  for  six  years  were  only 
35,430,  80%  of  which  were  aliens.  There  has  meantime  developed  a  large 
state  and  city  employment  service,  containing  in  all  98  offices.  The  need  for 
coordination  between  these  offices  in  respect  to  supplying  of  farm  labor,  has  re- 
sulted in  the  creation  of  the  Farmers  Labor  Exchange,  a  loose  organization 
of  state  employment  officers,  and  representatives  of  the  U.  S.  Departments 
of  Agriculture  and  Labor.  It  was  created  in  the  winter  of  1914,  and  meets 
annwally  at  Kansas  City.  It  lacks  the  funds  and  personnel  which  would  make 
it  a  really  effective  agency. 

During  the  war  the  needs  for  men  in  Industry  caused  the  separation 
of  the  employment  service  from  the  Bureau  of  Immigration  and  its  establish- 
ment as  a  separate  division  of  the  Department  of  Labor.  Advisory  boards 
vv^rre  formed  in  each  state  consisting  of  two  employers,  two  representatives 
of  labor,  and  the  state  director  of  employment  to  help  and  advise  the  service. 
Each  local  office  had  a  consulting  labor  board  consisting  of  one  employer, 
one  representative  of  labor,  and  a  chief  of  the  office,  to  whom  were  later  added 
one  woman  employer  and  one  woman  representative  of  labor.  Such  a  serv- 
ice with  the  Advisory  Boards  representing  employer  and  workman  is  the  first 
constructive  step  in  any  effort  to  combat  the  problem  of  unemployment,  for 
only  through  a  well  organized  network  of  labor  exchanges  can  the  work  test 
be  effectively  applied. 

To  meet  the  special  needs  of  women  in  industry,  a  special  branch  of  the 
Federal,  state,  and  local  Employment  Service,  with  women  in  charge,  might 
be  provided  for. 

SOCIAL  INSURANCE 

"In  the  health  of  the  people  ties  the  wealth  of  the  nation,"  said  Gladstone 
many  years  ago,  and  no  one  will  contest  the  truth  of  his  statement.  The 
health  of  the  people  of  the  United  States  is  not  satisfactory,  nor  is  all  possi- 
ble being  done  to  make  it  so.  Studies  recently  made  by  ten  official  commis- 
sions in  seven  states  show  the  seriousness  of  the  sickness  problem  in  this 
country  and  indicate  also  that  much  of  the  suffering  and  loss  caused  there- 
by is  unnecessary.  They  show  further  that  each  wage-earner  loses  on  an 
average  of  6.9  working'  days  a  year  from  sickness ;  the  wage  loss  being  con- 
servatively estimated  at  $750,000,000  annually.    Add  to  these  figures  the  cost 

164 


of  such  medical  care  as  the  wage-earners  can  provide,  and  it  is  not  strange 
that  sickness  is  the  chief  cause  of  destitution.  This  comes  out  more  clearly 
when  it  is  understood  how  unevenly  sickness  falls  on  the  individual.  In  one 
study  of  a  large  group  of  workers,  it  was  found  that  16  per  cent  lost  from  20 
to  50  per  cent  of  their  earnings  from  sickness,  while  31  per  cent  lost  less 
than  5  per  cent  in  a  given  year.  To  the  cost  to  the  individual  must  be  added 
the  cost  to  industry  from  the  expense  necessary  to  supply  the  place  of  the 
absent  worker  and  the  great  amounts  spent  annually  in  charitable  relief  for 
families  of  the  sick  workers. 

The  figures  of  the  draft  rejection  startled  the  nation.  From  young  men 
of  21  to  31,  39.11  per  cent  were  rejected  and  in  the  industrial  states  the 
proportion  is  striking.  In  Pennsylvania,  46.67  per  cent  were  rejected;  in 
Ohio,  32.2  per  cent.  Among  the  volunteers  the  proportion  was  far  greater, 
owing  to  a  strictisr  standard  in  the  early  moijths  of  the  war.  Among  72,- 
410  applicants  for  admission  to  the  navy  in  1914,  76  per  cent  were  refused. 
The  disqualifications  for  admissions  to  the  army  and  navy  will  surely  prove 
a  handicap  in  other  employments,  and  it  is  said  that  50  per  cent  of  the  causes 
of  rejection  could  have  been  prevented  by  proper  treatment  in  childhood. 

Hospital  accommodation  is  shown  to  be  deficient  and  furthermore  not 
so  organized  that  it  can  be  used  to  capacity,  and  medical  care  of  workers  is 
unsatisfactory  in  amount  and  in  quality  through  the  lack  of  proper  facilities 
for  laboratory  examination  and  special  care. 

In  other  industrial  countries  these  two  problems  of  loss  of  earnings  fall- 
ing unevenly  over  a  large  number  of  persons,  and  of  medical  care,  also  un- 
evenly provided,  have  been  met  by  some  form  of  health  insurance,  either 
for  all  or  part  of  their  workers.  Many  progressive  employers  in  the  United 
States  have  made  a  similar  provision  for  their  employees  and  to  a  certain 
extent  attempts  have  been  made,  though  not  with  much  success,  to  meet  the  need 
through  fraternal  societies  and  commercial  insurance  companies.  These 
efforts  have  succeeded  in  covering  only  a  small  proportion  of  the  people. 
Whether  the  insurance  method  should  or  should  not  be  adopted  in  the 
United  States,  and,  if  so,  how  the  insurance  should  be  organized,  whether 
uy  private  initiative  or  made  compulsory,  or  whether  we  should  confine  our- 
sejves  to  a  sanitation  and  safety  program  and  to  attempts  to  build  up  a 
uctter  system  of  state  aid  to  hospitals  and  diagnostic  facilities,  is  debatable; 
but  the  need  for  an  authoritative  national  study  of  the  problem  is  worthy 
Oi  serious  consideration. 

In  a  platform  standing  for  the  conservation,  the  greatest  of  natural 
resources,  the  health  of  the  people  of  the  country,  should  not  be-  ignored. 

In  addition  to  sickness,  the  burden  of  old  age  and  unemployment  weigh 
heavily  upon  the  working  people  in  any  industrial  state.  Seventeen  foreign 
countries,  including  most  of  the  important  industrial  states  of  Europe,  have 
provided  either  for  old  age  pensions  or  make  contributions  to  a  plan  of  com- 
pulsory old  age  insurance  to  safeguard  the  declining  years  of  industrial 
workers.  The  subject  has  been  studied  by  a  number  of  state  commissions, 
though  so  far  no  legislation  has  been  passed  providing  either  old  age  insur- 
ance or  pensions  for  workers. 

Another  unequally  distributed  risk  consequent  upon  the  industrialization 
of  society  is  that  of  unemployment.  In  Great  Britain  and  Belgium  and  to 
some  extent  in  Germany,  unemployment  insurance  has  been  introduced  to  pro- 

165 


vide  support  during  comparatively  short  periods  of  unemployment.  In  all 
these  systems,  dependency  is  placed  on  the  public  employment  agencies  to 
apply  the  work  test  to  applicants  for  benefits  and  the  trade  unions  are  an 
important  factor  in  carrying  and  administering  the  benefits.  While  neither 
old  age  pensions  nor  unemployment  insurance  may  yet  be  considered  ready 
for  definite  action,  a  sympathetic  attitude  towards  efforts  to  lighten  the 
burden  of  old  age  and  unemployment,  and  a  recommendation  that  either  the 
states  or  the  United  States  continue  investigations,  is  recommended  by  the 
committee. 

HOUSING    OF   WAGE    EARNERS 

The  housing  shortage  has  not  only  compelled  careful  study  of  ways  of 
stimulating  building,  it  has  brought  into  relief  the  unsatisfactory  character 
of  the  housing  accommodations  of  large  numbers  of  the  inhabitants  of  our 
cities,  both  small  and  large.  Comfortable  homes  at  reasonable  rates  are  a 
prime  necessity,  and  while  in  the  main  they  must  be  supplied  by  individual 
enterprise,  the  present  unusual  conditions  warrant  a  careful  study  of  the 
reasonable  methods  by  which  that  enterprise  can  be  stimulated  and  enco'ur- 
aged,  and  yet  fair  treatment  be  accorded  the  rent  payers. 

The  question  is  in  the  main  for  the  states,  yet  the  National  Government 
can  render  a  service  in  its  solution  without  departing  from  established 
principles  of  federal  action. 

During  the  war  a  large  amount  of  valuable  information  on  housing  and 
town  planning,  including  model  plans  for  houses  and  apartments,  was  col- 
lected by  the  United  States  Government  in  connection  with  the  building  of 
homes  for  workmen  in  the  war  industries.  Consequently  this  information 
bears  especially  on  accommodations  for  workmen,  and  in  view  of  the  exten- 
sive demand  it  is  urged  that  the  U.  S.  Government  should  make  available  this 
information  to  the  states,  to  private  organizations  and  to  individuals  who  are 
planning  housing  legislation  or  construction.  To  make  this  collection  of  the 
greatest  value  current  material  should  be  constantly  added  to  it.  At  com- 
paratively small  cost  the  material  gathered  and  arranged  by  experts  during 
the  war  could  be  preserved,  kept  up  to  date  and  be  made  currently  available. 

The  U.  S.  Government  has  in  many  cases,  notably  through  the  Depart- 
ments of  Agriculture  and  Labor,  undertaken  the  function  of  supplying  infor- 
mation to  the  states.  It  is,  therefore,  not  a  new  development  of  federal  ac- 
tivity to  conserve  and  make  public  valuable  information  on  the  housing 
problem. 

A  proposal  has  been  presented  in  the  House  of  Representatives  by  Con- 
gressman George  H.  Tinkham,  of  Massachusetts,  in  the  form  of  a  bill  upon 
which  public  hearings  were  held  in  November,  1919  (H.R.  7014,  a  bill  to  create 
a  Bureau  of  Housing  and  Living  Conditions  in  the  Department  of  Labor)  and 
in  the  form  of  one  or  more  resolutions,  one  of  which  makes  an  appropriation 
of  $250,000,  and  requires  the  Secretary  of  Labor  to  make  public  the  informa- 
tion acquired  through  the  Bureau  of  Industrial  Housing  and  Transportation, 
which  was  organized  under  the  Act  of  May  16,  1918,  and  which  had  been  col- 
lected by  that  Bureau  on  the  subject  of  housing  for  wage-earners  and  others, 
and  also  authorized  the  Secretary  to  inquire  through  that  Bureau  into  the 
methods  now  in  use  for  financing  the  construction  and  acquisition  of  homes, 
and  their  practical  operation  to  effect  such  methods,  and  to  report  the  result 

166 


to  Congress,  with  recommendation  of  such  legislation  as  he  may  find  ad- 
visable for  an  improvement  on  existing  methods  of  financing  home  construc- 
tion and  home  ownership. 

The  President's  Second  Industrial  Conference  Report  on  this  subject  is 
as  follows: 

"The  cessation  of  hostilities  was  followed  by  a  period  of  industrial  readjustment 
which  is  resulting  in  a  more  rapid  extension  of  the  country's  plant  and  factory  facilities 
than  has  occurred  for  many  years.  No  proportionate  extension  of  housing  facilities 
is  accompanying  this  rearrangement.  The  present  condition  of  insufficient  housing 
will,  therefore,  be  seriously  aggravated  rather  than  improved. 

"Provision  for  adequate  housing  is  a  responsibility  which  must  rest  primarily  upon 
the  local  community.  Concerted  action  in  all  industrial  communities  is  necessary  to 
deal  with  the  problem.  The  community,  its  employers,  its  banks,  its  citizens  generally, 
should  promptly  take  stock  of  their  present  position  and  develop  such  a  program  as  is 
called  for  by  their  local  requirements.  Measures  should  be  developed  to  enable 
employees  in  permanently  located  industries  to  acquire,  on  proper  terms,  the  ownership 
of  their  own  homes,  with  protection  against  the  dangers  of  real  estate  speculation  and 
exploitation.  The  states  should  likewise  initiate  systematic  inquiries  into  the  subject, 
including  the  extension  of  proper  building  and  housing  codes,  already  successfully  applied 
in  many  localities.  The  studies  of  the  Federal  Government  in  this  field  should  be  con- 
tinued and  emphasized." 

THE  PROGRESS  OF  THE  NEGRO  RACE 

Of  all  statistics  about  the  advance  of  any  class  or  race,  those  in  regard 
to  the  negro,  as  shown  by  a  comparison  between  his  condition  in  1866  and 
1919,  are  the  most  amazing. 

Homes  owned  have  increased  from  12,000  to  600,000;  farms  operated 
from  20,000  to  1,000,000;  businesses  conducted  from  2,100  to  50,000;  wealth 
accumulated  from  $20,000,000  to  $1,100,000,000;  literacy  from  10%  to  80%; 
colleges  and  normal  schools  from  15  to  500;  students  in  public  schools  from 
100,000  to  1,800,000;  teachers  from  600  to  38,000;  property  for  higher  edu- 
cation from  $60,000  to  $22,000,000;  annual  expenditures  for  education  from 
$700,000  to  $15,000,000 ;  raised  by  negroes  for  educational  purposes  from  $80,- 
000  to  $1,700,000 ;  churches  from  700  to  43,000 ;  communicants  from  600,000 
to  4,800,000;  Sunday  schools  from  1,000  to  46,000;  Sunday  school  pupils 
from  50,000  to  2,250,000;   church  property  from   $1,500,000   to   $85,900,000. 

In  1910  of  negroes  10  years  of  age  and  over  87  4/10%  of  males  and 
54  7/10%  of  females  were  gainfully  employed  as  compared  with  80  6/10% 
and  19  4/10%  of  whites.  More  than  one-half  were  engaged  in  agriculture 
and  half  of  these  were  farm  laborers  only.  In  a  single  decade  negro  farm 
owners  increased  17%  and  their  land  in  1910  was  valued  at  $346,881,270. 
There  has  been  a  gradual  transfer  from  the  less  skilled  to  skilled  occupations. 
In  the  decade  ending  in  1910  there  was  an  increase  of  103%  in  factory  work- 
ers, the  increase  in  textile  factories  being  283%.  They  operate  insurance 
companies  with  assets  amounting  to  $3,500,000,  with  $60,000,000  insurance  in  ' 
force.  There  are  72  negro  banks,  capitalized  at  $12,500,000  doing  an  annual 
business  of  $35,000,000. 

Negroes  invested  in  Liberty  Bonds  $1  out  of  every  $5  they  possessed. 
There  were  over  340,000  in  the  Army  and  only  one  case  of  conviction  for 
avoiding  the  draft. 

The  notable  thing  in  recent  years  has  been  the  migration  of  negroes  from 
the  South  to  the  North,  variously  estimated  at  from  300,000  to  over  750,000, 
for  there  are  no  statistics.  It  started  in  1915  and  reached  its  maximum  in 
1917.  The  low  wages  in  the  South,  the  lack  of  emigration  from  Europe  and 
the  intense  demand  for  labor  during  the  war  offered  inducements  to.  such 

1G7 


migration.  In  the  opinion  of  dispassionate  men  in  a  position  to  judge,  the 
social,  legal  and  political  discrimination  against  the  negro  in  the  South  had 
rendered  him  very  willing  to  heed  this  appeal  of  economic  advantage. 

Lynching  is  a  chief  cause  of  the  unrest  among  negroes.  In  the  30  years 
from  1889  to  1918,  3,224  persons  were  lynched,  of  whom  2,522  were  negroes, 
and  of  these  50  were  women.  The  North  had  219,  the  West  156,  Alaska  and 
unknown  localities  15,  and  the  South  2,834,  with  Georgia  leading  with  386 
and  Mississippi  following  with  373.  Yet  in  Georgia  negroes  paid  taxes  on 
1,664,368  acres  and  owned  property  assessed  at  $47,423,499.  There  has  been 
a  progressive  decrease  in  the  number  of  lynchings  even  in  the  South.  In  the 
five  years  up  to  and  including  1918  there  were  21  persons  lynched  in  the  North 
and  West  and  304  in  the  South.  Of  the  colored  victims  19%  were  accused 
of  rape  and  9  4/10%  of  attacks  upon  women;  the  principal  accusation  was 
murder,  35  8/10%. 

In  the  year  1919,  77  negroes,  4  whites  and  2  Mexicans  were  lynched.  10 
of  the  negroes  were  ex-soldiers;  one  was  a  woman..  Of  these  11  were  burned 
alive.  The  newspapers  of  New  Orleans  and  Jackson  advertised  in  large  red 
type  one  lynching  that  was  to  take  place.  The  Governor  of  Mississippi  an- 
nouced  himself  powerless  to  prevent  one  lynching.  There  had  been  a  growth 
of  sentiment  in  the  South  against  lynching  and  a  strong  stand  taken  by  some 
of  the  influential  white  papers. 

Race  riots  have  been  a  serious  feature.  In  May  and  July,  of  1917,  there 
were  race  riots  in  East  St.  Louis  due  to  the  objection  of  labor  unions  to  the 
importation  of  negro  laborers  from  the  South.  In  the  May  riot  one  negro  was 
killed  and  hundreds  of  negroes  driven  from  the  City.  In  the  July  riot  at  least 
39  negroes  and  8  whites  were  killed  and  hundreds  of  negroes  were  wounded 
and  maimed.  312  buildings  and  44  railroad  freight  cars  and  their  contents 
were  destroyed  by  fire.  In  August,  1917,  there  took  place  a  riot  in  Houston, 
Texas,  growing  out  of  friction  between  the  City  police  and  negro  soldiers  of 
the  24th  Infantry,  and  2  negro  soldiers  and  18  white  persons  were  killed. 
Of  the  soldiers  court-martialed  18  were  executed,  51  sentenced  to  life  im- 
prisonment and  4  to  brief  terms  of  imprisonment.  This  greatly  shocked  the 
colored  people  and  emphasized  their  feeling  that  negroes  were  punished  more 
severely  than  whites.  In  the  City  of  Washington  that  summer  prayer  meet- 
ings were  held  in  different  parts  of  the  City  in  the  early  morning  before  the 
negroes  went  to  work  and  thousands  attended. 

In  July,  1918,  there  was  a  race  riot  in  Chester,  Pennsylvania,  due  to  an 
influx  of  negroes  from  the  South  and  3  negroes  and  2  whites  were  killed. 
A  few  days  later  in  Philadelphia  a  riot  broke  out  due  to  objection  to  a  colored 
woman  purchasing  a  home  in  a  white  locality  and  3  whites  and  1  negro  were 
killed  and  60  or  more  persons  injured. 

In  1919  mob  outbreaks  against  negroes  and  clashes  between  the  races 
were  reported  from  26  cities.  In  Washington  6  were  killed.  In  Chicago, 
where  the  riots  lasted  six  days,  38  were  killed.  At  Omaha  the  mob  hanged 
the  Mayor,  who  had  attempted  to  prevent  the  lynching  of  a  negro,  and  burned 
the  new  County  Court  House.  Six  were  killed  at  Norfolk  and  a  reception 
to  home-coming  negro  troops  had  to  be  suspended.  In  Phillips  County,  Ar- 
kansas, 5  whites  were  killed  and  sonle  25  to  50  negroes,  among  the  latter  a 
successful  dentist,  who  owned  a  three-story  building  in  a  town,  and  a  promi- 
nent Oklahoma  physician.     They  had  been  on  a  squirrel  hunt.     There  were 

16S 


charges  that  the  negroes  had  hatched  a  plot  for  social  equality  and  to  take 
over  the  land  of  white  men.  The  negroes  explained  that  a  group  of  negro 
farmers  had  met  to  secure  settlements  from  land  owners  and  had  formed  an 
organization  for  the  purpose  of  advancing  the  intellectual,  material,  moral, 
spiritual  and  financial  interests  of  the  race. 

The  participation  of  negroes  in  the  war  both  promoted  good  feeling  and 
led  to  friction. 

The  participation  of  negroes  in  political  matters  in  the  South  does  not 
seem  to  have  increased.  Some  statistics  indicate  that  in  the  southern  states 
the  Republican  vote  is  small  where  the  negroes  are  in  large  numbers  and 
large  where  they  are  in  small  numbers. 


lOU 


Federal  Taxation 


Report  of  Sub-Committee 


OGDEN  L.  MILLS 

Chairman 


FEDERAL  TAXATION 

I.  The  Extent  and  General  Character  of  Tax  Revision.  II.  Undue  Depend- 
ence upon  Income  Taxation.  III.  Corporation  Income  Tax.  IV.  Simplification. 
V.  Excess  Profits  Tax.  VI.  Substitutes  for  the  Excess  Profits  Tax.  VII.  The 
Sales  Tax.  VIII.  Consumption  Taxes.  IX.  Miscellaneous  Taxes.  X.  Admin- 
istration.   Appendices. 

A  substantial  unanimity  of  opinion  appears  to  exist  among  all  classes  of 
the  people  that  the  federal  tax  laws*should  be  revised.  This  memorandum, 
therefore,  may  confine  itself  to  the  questions:  along  what  lines  and  to  what 
extent  is  this  revision  practicable  and  expedient?  The  subject  of  import  taxes, 
it  may  be  added,  is  reserved  for  separate  treatment  and  is  not  here  discussed. 

I.  THE  EXTENT  AND  GENERAL  CHARACTER  OF  TAX  REVISION: 

The  financial  position  and  prospects  of  the  Government  are  dominated  at 
the  present  time  by  the  gravest  uncertainty.  Events  which  are  not  subject 
to  control  may  affect  the  necessary  expenditures  of  a  single  year  by  hundreds 
of  millions,  possibly  billions,  of  dollars.  This  uncertainty,  together  with  the 
necessity  of  reducing  the  public  debt  (particularly  the  floating  debt)  as  rapidly 
as  possible,  suffice  in  themselves  to  render  impracticable  certain  extreme  pro- 
posals for  sweeping  and  immediate  reductions  of  the  general  tax  levy  which 
have  been  recommended.  It  is  thus  impracticable  to  reduce  federal  taxes  by 
a  billion  dollars  or  more  in  the  next  year  or  two,  either  by  borrowing  to  pay 
current  expenses  or  by  cutting  those  current  expenses  "to  the  bone." 

Assuming  (1)  the  continued  exercise  of  rigid  economy  on  the  part  of  Con- 
gress, (2)  that  the  country  does  not  become  involved  in  war  or  in  international 
entanglements  involving  heavy  extraordinary  expenditures,  (3)  that  any  plan 
of  soldiers'  bonus  payments  which  may  be  approved  will  be  separately  or  inde- 
pendently financed,  and  (4)  that  the  national  income  is  not  seriously  reduced  by 
panic  or  industrial  depression ;  on  these  assumptions  the  chances  are  good  that 
present  sources  of  revenues  will  yield  a  comfortable— perhaps  a  very  consider- 
able— excess  of  ordinary  receipts  over  ordinary  disbursements  for  the  fiscal 
years  1921  and  1922  combined.  It  seems  reasonable  to  make  the  above  as- 
sumptions— with  the  possible  exception  of  the  fourth  or  last,  which  is  discussed 
below — in  planning  a  tax  budget  which,  although  it  must  be  adjusted  now  to 
probable  future  revenue  needs,  can  nevertheless  be  changed  to  meet  extraor- 
dinary demands  if  they  arise. 

In  ordinary  times  an  expected  surplus  of  current  receipts  over  current 
expenses  would  be  enough  to  justify  plans  for  the  reduction  of  taxes.  But 
these  are  not  ordinary  times.  We  have  ended  a  terrible  war  with  a  colossal 
debt.  The  public  credit  is  not  in  condition  to  stand  new  or  unnecessary  drains ; 
on  the  contrary,  it  should  be  toned  up  and  strengthened  to  meet  the  demands 
upon  it  which  the  future  will  inevitably  bring.  The  Treasury  began  the  fiscal 
year  1920  with  a  floating  debt  in  the  form  of  outstanding  treasury  certificates 
alone  of  $3,633,804,490.  This  cannot  be  indefinitely  converted  or  reissued  by 
devising  new  forms  of  "anticipations" ;  neither  can  it  be  funded  on  favorable 
terms.  It  should  be  paid  off  at  the  earliest  practicable  date.  During  the  past 
fiscal  year  the  condition  of  the  funded  debt  has  been  such  as  to  make  desirable 

173 


the  appropriation  for  the  cumulative  sinking  fund,  the  institution  and  main- 
tenance of  which  was  promised  in  the  Victory  Loan  Act  approved  March  3, 1919. 

Finally,  for  the  next  two  years  the  whole  fiscal  policy  of  the  Government, 
including  its  tax  policy,  must  be  deeply  influenced,  if  not  controlled,  by  the 
necessity  of  meeting  obligations  in  excess  of  $5,000,000,000  which  mature  in 
1923.  Approximately  $750,000,000  of  War  Savings  Certificates  mature  Janu- 
ary 1,  1923,  and  nearly  $4,500,000,000  of  Victory  Notes  mature  May  20,  1923. 
To  the  largest  possible  extent  these  obligations  should  be  finally  paid,  and  not 
refunded  at  maturity.  The  refunding  of  a  debt  of  $5,000,000,000  in  time  of 
peace,  without  the  stimulus  of  war  patriotism  and  without  the  help  of  the 
gigantic  organization  which  placed  and  distributed  the  Liberty  Loans,  is  at  best 
a  difficult  and  might  prove  an  impossible  undertaking.  And  in  any  event  the 
best  preparation  for  the  grave  task  which  will  confront  the  Treasury  in  1923 
is  a  preceding  record  of  debt  extinguishment,  ample  provision  for  a  sinking 
fund,  and  the  assurance  of  current  receipts  sufficient  or  more  than  sufficient 
to  meet  current  expenditures. 

But  sound  policy  equally  demands  the  early  accomplishment  of  that  real 
reduction  of  the  tax  burden  which  may  be  achieved  by  substituting  simple  for 
complex  tax  laws  and  procedure,  prompt  and  certain  determination  of  the  tax 
liability  for  delay  and  uncertainty,  tax  laws  which  do  not,  for  tax  laws  which 
do  excessively  mulct  the  consumer  or  needlessly  repress  enterprise  and  thrift. 
There  can  be  no  valid  objection  to  moderate  reductions  in  the  yield  of  par- 
ticular taxes,  within  the  general  limits  above  set  forth,  resulting  as  a  neces- 
sary incident  from  the  repeal  or  replacement  of  taxes  which,  through  their 
demoralizing  effects  on  the  consumer  or  on  business,  tend  to  dry  up  the  very 
sources  of  taxation  itself  and  thus  to  undermine  the  foundations  of  the  public 
credit. 

n.   UNDUE  DEPENDENCE  UPON  INCOME  TAXATION: 

During  the  present  fiscal  year  85  per  cent  of  the  ordinary  receipts  will  be 
derived  from  internal  taxes  and  of  the  latter  nearly  75  per  cent  will  come  from 
income  and  profits  taxes  alone.  Nearly  one-half  (45  per  cent)  of  this  stupen- 
dous tax  budget  of  $5,159,000,000,  will  rest  upon  the  income  of  corporations 
alone ;  and  if  we  add  to  the  latter  the  capital  stock  tax,  the  taxes  of  transporta- 
tion, other  facilities  and  insurance,  the  special  taxes  on  business,  the  stamp 
taxes  and  that  portion  of  the  personal  income  tax  derived  from  trade  and  busi- 
ness,— 63  per  cent  of  the  total  tax  levy  may  be  said  to  be  derived  from  busi- 
ness and  the  necessary  processes  of  trade  and  commerce. 

So  great  a  dependence  upon  income  taxes,  particularly  the  incomes  of  busi- 
ness concerns,  is  undesirable.  The  Treasury  and  the  credit  of  the  Government, 
it  has  been  shown  above,  will  be  critically  dependent  during  the  next  few  years 
upon  certain  and  ample  tax  revenues.  The  income  and  profit  taxes  are  far  from 
certain.  On  the  contrary,  if  the  inevitable  reaction,  which  must  some  day  fol- 
low the  feverish  activity  occasioned  by  the  war,  eventuates  during  these  criti- 
cal years,  the  Treasury  will  be  dangerously  embarrassed  by  the  shrinkage  of 
the  tax  revenue. 

IIL     CORPORATION   INCOME   TAX: 

The  coi-poration  income  tax  cannot  and  should  not  be  abolished.  The 
structure  and  application  of  the  income  tax,  as  applied  both  to  individuals  and 

174 


corporations,  should  be  simplified  (see  VI,  below),  and  improvement  could  be 
effected  in  many  of  the  technical  details  of  both  taxes. 

(a)  But  corporations  cannot,  as  is  often  proposed,  be  exempted  as  such.  The  in- 
come tax  is  necessarily  in  part  a  tax  on  business.  The  corporation  as  a  busi- 
ness entity  competes  with  the  partnership  and  the  sole  proprietor,  and  all  three 
should  be  taxed  in  substance  as  nearly  as  may  be  on  the  same  basis.  The 
recent  decision  of  the  Supreme  Court  in  the  stock  dividend  case  makes  it  clear 
that  the  ordinary  corporation  must  be  regarded  as  a  true  entity  for  purposes 
of  taxation.  The  stockholders  cannot  be  taxed  on  their  distributive  shares  of 
the  undivided  profits,  as  the  members  of  partnerships  are  taxed.  Yet  not  to 
tax  such  undistributive  profits  in  some  way  is  to  put  a  premium  on  the  cor- 
porate form  of  business  organization. 

(b)  While  corporations  cannot  be  exempt  it  is  possible  and  desirable  to  reduce  the 
tax  on  earnings  retained  in  the  business  and  to  make  the  burden  on  corporate 
and  incorporate  business  more  nearly  uniform.  A  method  of  accomplishing  this 
is  suggested  under  IX  and  X  below.  A  nearer  approach  to  the  equal  treat- 
ment of  corporations  and  other  taxpayers  could  be  secured  (1)  by  including 
dividends  in  the  net  income  of  stockholders  subject  to  normal  tax  and  then 
crediting  against  the  stockholders'  tax  the  full  10  per  cent,  tax  already  paid  by 
the  corporation;  and  (2)  by  increasing  the  individual  normal  tax  rates  of  4  and 
8  per  cent,  to  5  and  10  per  cent,  as  explained  in  IV  above. 

(c)  Corporations  are  in  many  instances  practically  forced  to  make  gifts  or  con- 
tributions in  order  to  hold  the  good  will  of  their  customers;  and  when  the 
power  to  make  such  contributions  is  granted  by  the  laws  of  the  state  under 
which  the  corporation  is  organized,  there  is  no  valid  reason  for  withholding 
from  the  corporation  the  same  oi  similar  deductions  now  granted  to  individuals. 

IV.     SIMPLIFICATION: 

Complexity  in  the  income  and  profits  taxes  has  become,  in  the  words  of  the 
Secretary  of  the  Treasury,  "a  major  menace"  which  threatens  seriously  to  im- 
pede business  and  break  down  the  administrative  machinery  of  the  Bureau 
of  Internal  Revenue.  No  simplification  worthy  of  achievement  can  be  effected 
by  sacrificing  equity  or  administrative  efficiency,  or  by  replacing  sound  by  un- 
sound methods  of  taxation.  Simplicity  in  taxation,  like  the  simplicity  of  ^reat 
literature,  can  be  achieved  only  after  the  most  unremitting  effort  and  trial. 
Certain  detailed  changes  which  would  materially  help  to  simplify  the  tax  system 
are  noted  below.  But  the  larger  and  more  fundamental  measures  of  simpHfica- 
tion  are  to  be  found  in  the  major  reforms  recommended  in  the  body  of  this 
report,  which  is  dedicated  primarily  to  simplification  of  the  great  system  of 
taxation  which  we  now  possess,  but  which  must  eventually  be  discredited  unless 
saved  from  excessive  rates  and  over-elaboration.  The  larger  measures  of  sim- 
plification include:  (1)  the  repeal  of  the  excess  profits  and  capital  stock  taxes; 
(2)  elimination  of  consumption  taxes  paid  by  the  purchaser  on  separate  retail 
sales  (see  X,  1  (a),  4  (a),  (b) ;  (3)  the  establishment  of  a  standing  committee 
or  board,  on  simplification ;  (4)  the  issuance  of  a  short  form  of  income  return, 
simplified  by  omitting  all  complications  introduced  to  avoid  unusual  hardships, 
which  could  be  employed  by  the  taxpayer  at  his  option,  whether  his  income 
exceeded  $5,000  or  not;  (5)  abolition  of  the  consolidated  return  authorized 
by  section  240.  (This  should  be  done  only  after  the  repeal  of  the  excess  profits 
tax  and  the  adoption  of  a  new  provision  permitting  a  net  loss  sustained  by 
one  corporation  to  be  absorbed  by  or  deducted  from  the  net  income  of  any  other 
corporation  with  which  it  was  aflfiliated.  Possibly  no  other  possible  change  in 
the  law  would  so  greatly  reduce  the  strain  and  expense  of  administration) ; 
(6)  and  most  important  of  all,  perhaps,  adoption  of  the  administrative  changes 
recommended^  below. 

175 


V.     EXCESS  PROFITS  TAX: 

The  excess  profits  tax  has  many  virtues.  It  shields  or  protects  public 
utilities  and  low-earning  corporations  with  profits  less  than  eight  per  cent  of 
their  invested  capital.  It  is  very  productive.  It  will  yield  about  $1,700,000,000 
in  the  fiscal  year  1920  and  about  $1,100,000,000  in  the  fiscal  year  1921  if  cor- 
'porate  profits  do  not  decline.  But  its  defects  and  disadvantages  greatly  out- 
weigh its  virtues.  It  works  unequally.  It  depends  to  a  large  extent  upon  the 
mere  accident  of  form  in  which  the  corporation  is  organized.  It  penalizes 
under-capitalized  corporations  as  compared  with  over-capitalized  corporations. 
It  punishes  conservative  corporation  finance  and  rewards  stock  -watering.  A 
large  number  of  the  very  corporations  which  the  public  charges  with  profiteer- 
ing get  off  with  comparatively  small  excess  profits  taxes  because  they  have  been 
so  generously  capitalized,  ^he  excess  profits  tax  does  not  apply  to  individuals, 
partnerships  and  personal  service  corporations.  If  the  principle  is  sound  it 
should  be  applied  to  all  business  concerns.  Finally,  the  law  is  so  complex — 
particularly  the  computation  of  invested  capital — that  the  Treasury  Depart- 
ment confesses  that  as  a  permanent  duty  the  tax  cannot  be  successfully 
administered. 

(a)  But  the  excess-profits  tax  cannot  simply  be  repealed  without  putting  in  its 
place  some  substitute  which  will  fairly  compensate  for  the  income  tax  levied 
upon  that  part  of  the  income  of  individuals  and  partnerships  which  is  left  in 
the  business  or  saved  and  reinvested.  This  aspect  of  the  subject  is  discussed 
at  length  in  Secretary  Houston's  letter  of  March  17,  1920,  to  Chairman  Ford- 
ney  of  the  Committee  on  Ways  and  Means,  from  which  the  following  excerpt 
is  taken: 

"The  general  course  or  principle  which  simplification  of  this  part  of  the  tax 
law  should  follow  is,  I  believe,  reasonable  clear.  The  outstanding  feature  of 
the  present  system  of  income  taxation  in  its  most  important  application  to  busi- 
ness income  is  the  fact  that  we  employ  for  this  purpose  two  systems  of  taxa- 
tion which  are  incommensurate  and  irreconcilable.  Corporations  pay  the  profits 
tax  and  normal  income  tax,  while  their  stockholders  pay  surtaxes  on  dividends 
•  or  distributed  profits,  but  nothing    in   respect    of    the   undistributed   corporate 

profits.  On  the  other  hand,  sole  proprietors  and  the  members  of  partnerships 
pay  full  income  tax,  normal  tax,  and  surtaxes  upon  the  entire  profits  of  their 
business,  whether  distributed  or  not,  but  are  exempt  from  the  profits  tax.  The 
profits  tax  on  corporations  is  evidently  meant  to  be  a  rough  equivalent  for  the 
surtaxes  levied  upon  the  reinvested  or  undistributed  profits  of  other  forms  of 
,  business.     But  no  true  equivalence  is  reached.    In  1918  the  members  of  a  well- 

known  partnership  paid  nearly  $1,125,000  more  taxes  than  they  would  have 
paid  had  their  business  been  organized  as  a  corporation.  And  the  contrary  is 
quite  frequently  true.  There  should  be  one  system  and  not  two  systems  of  in- 
come taxation  applicable  to  persons  engaged  in  business." 

(b)  A  tax  on  the  undistributed  profits  of  corporations  should  be  substituted  for  the 
tax  on  excess-profits,  in  the  manner  described  in  X  below.  This  may  be  re- 
garded as  a  modification  of  the  excess-profits  tax  or  as  a  complete  substitute 
for  it. 

(c)  A  majority — probably  about  eighty  per  cent. — of  the  corporations  of  the  coun- 
try secure  what  might  briefly  be  called  a  reasonable  and  normal  allowance  of 
invested  capital;  but  in  a  large  minority  of  cases — perhaps  twenty  per  cent. — 
the  invested  capital  is  distorted  or  abnormal  owing  to  the  rigid  and  peculiar 
provisions  of  Section  325  of  the  Revenue  Act  of  1918.  It  seems  unnecessary 
to  discuss  these  technical  defects  in  detail,  since  the  excess-profits  tax  must 
be  condemned  because  of  mere  fundamental  limitations  and  defects.  The  tax 
is  restricted  to  one  form  of  business  organization,  thus  permitting  any  business 
to  escape  which  can  be  organized  in  other  than  the  corporate  form;  and  it  is 
necessarily  so  complicated  that  it  cannot  fairly  or  successfully  be  applied  over 
a  long  period  of  years  under  existing  conditions. 

VI.     SUBSTITUTES  FOR  THE  EXCESS  PROFITS  TAX: 

The  substitute  for  the  excess  profits  tax,  which  on  the  whole  seems  in 
nost  accord  with  the  fundamental  requirements  of  the  Federal  Tax  System, 
may  be  thus  briefly  described: 

Corporations  are  to  be  subject  in  the  first  instance  to  a  profits  tax  at  a 

176 


flat  rate,  imposed  not  upon  excess  profits,  but  upon  undistributed  profits.  That 
part  of  the  profits  for  the  taxable  year  which  is  not  distributed  in  dividends 
and  which  consequently  escapes  taxation  in  the  hands  of  the  stockholders  is 
to  be  taxed  to  the  corporation,  say  at  20  per  cent,  in  addition  to  the  regular 
normal  tax  imposed  upon  all  corporate  profits  above  the  authorized  exemption 
of  $2,000. 

However,  the  corporation  would  be  authorized,  and  even  encouraged,  to 
employ  one  or  more  of  the  devices  by  which  its  profits  could  be  taxed  to  the 
stockholders  and  yet  retained  by  the  corporation  in  its  business.  In  short,  the 
law  should  be  so  framed  as  not  to  put  a  premium  on  the  dissemination  of  all 
corporate  profits. 

In  order  to  differentiate  in  favor  of  "savings"  the  tax  on  undistributed 
profits  outlined  above  should  be  extended  and  perfected  by  limiting  the  in- 
dividual surtaxes  on  or  attributable  to  income  saved  and  reinvested  to  the  same 
rate  as  is  applied  to  the  undistributed  profits  of  corporations.  Assuming  this 
rate  to  be  20  per  cent,  the  procedure  would  be  as  follows :  The  individual  would 
first  ascertain  the  part  of  his  net  income  for  the  year  which  was  saved  and 
reinvested.  He  would  then  compute  his  total  surtaxes  exactly  as  at  present 
and  would  take  a  proportionate  part  thereof  equal  to  the  part  of  his  net  income 
which  had  been  saved  and  reinvested.  This  part  of  the  aggregate  surtaxes 
would  be  the  part  "attributable  to  the  income  saved  and  reinvested."  If  this  part 
of  the  aggregate  surtax  exceeded  20  per  cent  of  the  amount  of  income  saved 
and  reinvested,  the  excess  would  be  abated  or  stricken  off. 

The  maximum  rate  upon  such  saved  income  would  thus  be  approximately 
the  same,  whether  reinvested  by  the  individual,  the  partnership,  or  the  cor- 
poration, and  whether  reinvested  personally  by  the  stockholders  of  a  corpora- 
tion or  by  such  corporation  for  its  stockholders.  If  at  any  later  date  the  profits 
of  a  corporation  which  had  paid  the  undistributed  profits  tax  came  to  be  dis- 
tributed, a  credit  equal  to  the  tax  already  paid  by  the  corporation  could,  if  it 
were  thought  wise,  be  easily  granted  to  the  stockholders.  The  revenue  lost 
by  such  an  amendment  could,  if  necessary,  be  made  up  by  increasing  the 
normal  tax  or  that  portion  of  the  surtaxes  attributable  to  income  spent  for 
purposes  of  consumption.  But  the  time  is  fast  approaching  when  the  adop- 
tion of  such  an  amendment  would  cause  little  real  reduction  of  the  revenue. 
We  cannot  long  continue  to  collect  surtaxes  rising  to  65  per  cent  upon  income 
from  ordinary  business  and  investment  while  exempt  interest  at  a  remunera- 
tive rate  can  easily  be  secured  from  tax-free  bonds.  We  must  take  something 
less  than  65  per  cent  or  in  the  end  take  nothing.  On  the  other  hand,  no  re- 
duction is  urged  in  respect  of  income  spent  for  unnecessary  or  ostentatious  con- 
sumption. Income  saved  and  reinvested  in  property  or  business  yielding  a  tax- 
able income  should  be  taxed  at  lower  rate;  income  spent  for  consumption  or 
invested  in  tax-exempt  securities  should  pay  at  established  rates  both  the  nor- 
mal tax  and  surtaxes.  To  the  extent  that  it  falls  on  savings  the  income  tax 
should  be  reduced ;  to  the  extent  that  it  is  a  tax  on  waste  it  should  be  main- 
tained or  even  increased. 

VII.    THE  SALES  TAX: 

The  present  system  of  federal  taxation  is  at  parts  so  defective,  while  at 
the  same  time  the  need  for  large  tax  revenue  is  so  great,  that  the  growing  de- 
mand for  the  introduction  of  a  low  tax  on  sales  deserves  careful  attention. 

177 


While  the  general  virtues  and  advantages  ascribed  to  the  sales  tax  by  its 
advocates  must  be  discounted,  and  in  some  instances  heavily  discounted,  they 
are  in  large  part  genuine  and  real.  It^would,  if  adopted,  relieve  the  undue  de- 
pendence of  the  Treasury  upon  the  income  tax  in  various  forms, — a  depend- 
ence which  is  calculated  not  only  to  demoralize  and  discredit  that  great  form 
of  taxation,  but  in  time  of  panic  or  industrial  depression  to  seriously  endanger 
the  revenue  and  consequently  the  credit  standing  of  the  Government.  It  would 
have  the  almost  inestimable  advantage  of  a  low  rate,  a  characteristic  which 
qualified  experts  and  experienced  administrators  are  likely  to  rank  first  among 
all  the  possible  virtues  of  a  tax.  It  would  be  in  any  of  its  more  extensive  forms 
highly  productive.  It  would  be,  if  not  easy  and  simple  of  operation,  at  least 
materially  more  simple  and  certain  than  the  income  and  profits  taxes.  Such 
a  tax  is  in  successful  operation  in  the  Philippine  Islands ;  and  other  things  being 
equal  it  would  be  desirable  in  this  country  to  test,  by  actual  practice,  side  by 
side  the  comparative  virtues  and  defects  of  the  sales  tax  and  the  income  tax. 
Finally,  to  mention  more  disputable  virtues  which  are  claimed  for  it,  it  is 
argued  that  the  adoption  of  the  sales  tax 'would  relieve  Congress  from  the  in- 
vidious task  of  selecting  particular  industries  or  commodities  for  special  taxa- 
tion ;  and  that  the  sales  tax  would  be  shifted  to  the  consumer  with  less  exploita- 
tion and  with  fewer  profiteering  additions  than  the  present  income  and  profits 
taxes. 

Despite  these  claims — most  of  which  are  in  large  part  valid,  the  verdict 
must  be  that  the  case  for  the  sales  tax  is  not  yet  proven.  To  justify  this 
conclusion  a  brief  analysis  of  the  tax  itself  is  necessary.  Many  different  forms 
of  the  sales  tax  are  recommended  for  reasons  which  are  contradictory  and  for 
purposes  which  are  in  fundamental  conflict.  But  it  will  be  sufficient  to  examine 
the  two  principal  forms  of  the  tax :  first,  a  general  tax  on  all  sales,  and,  second, 
a  more  restrictive  tax  on  sales  for  consumption  and  use. 

General  Tax  on  Sales :  Even  with  certain  exemptions  and  limi1;ations  which 
are  probably  inevitable,  a  tax  of  this  kind  at  one  per  cent  would  yield  an  enor- 
mous revenue,  certainly  over  $1,250,000,000,  and  possibly  as  high  as  $1,750,- 
000,000.     But  its  defects  and  disadvantages  would  be  serious: 

(1)  It  would  foster  combination  and  penalize  small  independent  business  concerns 
by  discriminating  in  favor  of  the  large  corporate  combinations  which  carry  on 
under  one  ownership  many  different  operations,  usually  conducted  as  independ- 
ent businesses.  The  combined  business  could  exchange  products  from  one  de- 
partment to  another  without  payment  of  the  tax,  whereas  smaller  dealers  or 
producers  would  have  to  pay  the  tax  on  each  stage  or  break  in  the  process  of 
production  and  distribution.  The  manufacturer  who  did  his  own  jobbing  would 
pay  one  tax;  where  the  jobber  was  independent,  two  taxes  would  have  to  be 
paid. 

(2)  The  tax  would  be  capaciously,  and  in  some  industries,  heavily  cumulative,  and 
the  combined  burden  would  probably  affect  the  prices  of  some  goods  in  much 
the  same  way  that  present  income  and  profits  taxes  are  said  to  affect  them. 
The  operation  of  the  Civil  War  taxes  on  manufactures  and  sales  was  found  to 
be  almost  unbearably  cumulative  on  some  industries,  such  as  the  publication 
of  books,  although  this  may  have'  been  due  to  the  heavy  rates  imposed  by 
the  Civil  War  taxes  in  question.  ! 

(3)  A  general  tax  of  this  kind  would  create  an  a'lmost  impossible  administrative 
burden.     In  itself  such  a  tax  might  be  easier  to  administer  than  the  income  tax, 

.  but  no  one  proposes  or  believes  it  possible  to  do  away  with  the  income  tax. 
The  sales  tax  would  simply  add  a  new  and  major  burden  to  an  administrative 
bureau  which — charged  as  it  is  with  enforcement  of  national  prohibition,  the 
federal  child  labor  law,  and  the  administration  of  the  income,  excess-profits, 
and  other  internal  taxes — is  now  dangerously  near  a  breakdown. 

(4)  The  sales  tax  is  neither  required  nor  suited  to  serve  as  a  substitute  for  the 
excess-profits  tax.     To  abolish  the  excess-profits  tax  without  introducing  any- 

,  thing  in  its  place,  would  leave  individuals  and  partnerships  subject  to  the  nor- 

178 


mal  tax  and  heavy  surtaxes  rising  to  65%  on  all  their  income  and  profits, 
whether  left  in  the  business  or  withdrawn  from  the  business,  whereas  profits 
of  corporation  left  in  the  business  would  be  subject  only  to  the  nohmal  cor- 
poration tax  of  10%.  Such  preferential  treatment  of  the  corporation  could 
hardly  be  defended;  if  it  were  aggravated  by  the  imposition  of  an  additional  tax 
falling  principally  upon  consumers  it  could  not  be  defended  at  all. 
(5)  The  formulation  of  such  a  tax  would  raise  the  most  perplexing  problems  and 
require  the  most  invidious  distinctions  to  be  made  between  the  classes  to  be  in 
eluded  and  those  to  be  exempt. 

(a)  Sales  which  are  taxed  under  existing  law  would  probably  have  to  be  ex- 
empt.    Most  of  the  existing  taxes  on  sales  are  at  rates  in  excess  of  1%. 

(b)  All  sorts  of  political  exemptions,  for  the  purpose  of  sweetening  the  tax, 
would  be  proposed,  or  have  already  been  proposed;  e.  g.,  exemptions  of 
sales  by  farmers,  and  of  wages  paid  to  artisans,  etc.,  although  the  tax  is 
expected  to  be  borne  by  the  purchaser. 

(c)  Small  dealers,  such  as  newsboys  and  itinerant  vendors,  would  probably  have 
to  be  exempt,  as  they  are  in  the  Philippine  Islands.  There  is  little  possi- 
bility of  successfully  enforcing  the  tax  in  such  cases,  and  to  leave  such 
dealers  subject  to  the  tax  without  collecting  the  tax  from  them  would  pre- 
sent a  spectacle  of  wholesale  evasion,  calculated  to  demoralize  the  whole 
tax.  On  the  other  hand,  if  they  should  be  exempted  we  should  have  certain 
dealers  subject  to  a  tax  from  which  their  smaller  competitors  were  free. 

(d)  Sales  of  capital  assets — land;  patents;  the  plant,  good-will,  and  general 
assets  of  a  going  business;  stocks  and  bonds — would  cause  much  trouble. 
The  essential  qualities  of  this  tax  are  its  universality,  and  its  uniform  rate. 
Yet  a  tax  of  1%  upon  sales  of  capital  assets  would  arouse  great  opposi- 
tion and,  as  regards  stocks  and  bonds,  might  prove  embarrassing,  if  not 
prohibitive.  1 

(e)  Rent  and  interest — i.  e.,  the  price  paid  for  the  use  of  property  and  capital, 
respectively — would  also  occasion  trouble.  There  seems  no  logical  reason 
for  their  exemption,  yet  the  tax  here  would  increase  the  cost  of  credit 
to  the  debtor  and  rent  to  the  harassed  tenant.  However,  the  low  rate 
would  avert  much  of  the  force  of  this  criticism. 

(f)  Sales  of  service  would  raise  a  troublesome  problem.  There  is  no  logical 
reason  for  their  exclusion.  If  sales  of  the  fundamental  raw  materials  used 
in  manufacturing  the  absolute  necessities  of  life  are  to  be  taxed,  there 
seems  no  reason  for  excluding  sales  of  the  services  of  lawyers,  accountants, 
engineers,  and  even  skilled  laborers  whose  wages  exceeded  the  exemption 
limit  mentioned  in  (c)  above.  Treatment  of  nublic  service  companies  where 
a  very  slight  increase  in  the  rate  would  hardly  be  practicable,  presents  par- 
ticular difficulties.  < 

(g)  Finally,  public  opinion  and  logic  would  probably  combine  to  demand  a  uni- 
versal customs  tax  equivalent  to  the  general  tax  levied  upon  internal  or 
domestic  sales. 

Sales  for  Consumption  and  Use:  At  the  other  extreme  lies  that  concep- 
tion of  the  sales  tax  which  would  make  it  a  consumption  tax.  Such  a  tax 
would  be  far  more  consistent  than  the  general  tax  on  sales,  and  it  avoids  many 
of  the  most  difficult  problems  which  the  general  tax  on  turnovers  or  exchange 
is  compelled  to  meet,  but  the  yield  of  the  consumption  tax  would  be  very  much 
smaller: 

(1)  If  the  tax  were  applied  to  sales  for  productive  consumption — e.  g.,  coal,  ma- 
chines, tools,  and  equipment  of  all  kinds — it  would  have  most  of  the  weaknesses 
and  defects  attaching  to  the  general  sales  tax. 

(2)  If  confined  to  sales  for  personal  or  final  consumption  it  would  require  fine-spun 
distinctions  to  be  made  in  the  law,  and  cumbersome  administrative  machinery 
for  the  separation  of  different  classes  of  sales.  Dealers  would  be  forced  to 
secure  certificates  or  affidavits  from  .purchasers  certifying  that  the  goods  pur- 
chased were  exclusively  for  resale  or  for  use  in  the  manufacture,  preparation, 
or  repair  of  articles  to  be  sold  for  profit.  In  the  case  of  articles  such  as  gaso- 
line, meals,  and  lodging  sold  by  hotels  to  commercial  travelers,  passenger  trans- 
portation partly  for  pleasure  and  partly  for  profit — the  difficulties  would  be 
great.  After  careful  consideration,  however,  in  our  opinion  such  a  tax  is  ad- 
ministratively practicable,  and  it  could  be  enforced  without  inordinate  com- 
plexity and  without  undue  strain  upon  the  honesty  of  taxpayers.  But  the  pro- 
ductivity of  the  tax  would  be  greatly  reduced  and  it  is  doubtful  whether  such  a 
tax  at  1%,  with  all  the  necessary  exemptions,  would  yield  as  much  as  $400,000,- 
000.  And  here  again  a  heavy  administrative  burden  would  be  added  to  a  bureau 
already  close  to  the  limit  of  its  efficient  performance. 

X79 


(3)  Sales  of  service  would  be  particularly  troublesome..  The  essential  character  of 
this  proposal,  as  a  tax  on  consumption,  makes  it  particularly  appropriate  and 
desirable  to  include  sales  of  luxurious  and  non-essential  service — e.  g.,  of  actors, 
domestic  service,  waiters,  manicurists,  decorators — yet  it  would  be  probably  im- 
practicacle  to  collect  the  tax  from  such  vendors. 

(4)  Finally,  the  sales  which  would  be  most  appropriately  included  under  a  tax  of 
this  kind  are  already  subject  to  higher  taxes.  Tobacco,  beverages  of  all  kinds, 
amusements,  automobiles,  jewelry,  candy,  and  the  other  semi-luxuries  covered 
by  Title  IX  of  the  Revenue  Act  of  1918,  are  already  taxed  at  rates  far  in  ex- 
cess of  any  rate  which  could  be  adopted  tor  a  general  tax  on  sales  for  con- 
sumption and  use.  Under  all  the  circumstances,  is  an  additional  tax  which  at 
this  time  of  high  prices  would  fall  principally  on  articles  of  necessary  con- 
sumption, practically  expedient? 

In  the  above  discussion  nothing  has  been  said  about  a  number  of  the  as- 
pects of  this  proposal  which  usually  receive  much  attention;  for  instance, 
whether  present  tax  on  income  and  profits  are  shifted  to  consumers  or  not ;  and 
whether  the  failure  of  the,  sales  tax  to  conform  to  any  principle  of  equity,  such 
as  "ability  to  pay,"  should  be  regarded  as  an  essential  defect.  As  a  practical 
proposal,  however,  the  question  of  the  sales  tax  can  be  settled  without  discuss- 
ing these  debatable  topics.  The  controlling  consideration  is  this :  Judgment  or 
decision  in  questions  like  the  one  under  discussion  always  involve  a  choice  of 
evils.  The  question  is  not  the  sales  tax  versus  the  income  tax.  The  question 
is  the  sales  tax  versus  the  best  of  all  other  new  or  additional  taxes,  and  it  seems 
plain  after  the  above  analysis  that  any  new  revenue  necessary  to  reform  our 
tax  system  should  be  secured  from  a  few  sources  which  would  be  at  once  highly 
productive  and  easily  supervised  and  administered.  Such  a  list  of  additional 
taxes  is  furnished  under  XV,  below. 

VIII.     CONSUMPTION  TAXES: 

The  consumption  taxes  (mainly  on  non-essentials  and  semi-luxuries)  cov- 
ered by  this  question  will  yield  in  the  present  fiscal  year  about  $850,000,000  or 
approximately  i6  per  cent  of  the  total  internal-tax  revenue. 

(1)  While,  therefore,  quite  productive,  they  are  in  many  instances  (Rule 
IX  of  Revenue  Act)  particularly  obnoxious  and  irritating  -to  the  taxpayers 
concerned ;  difficult  of  administration ;  productive  of  much  evasion ;  and  imposed 
at  rates  which  are  inconsistent  and  inharmonious.  This  aspect  of  the  tax  is 
brought  out  in  the  following  comparison  of  rates,  quoted  from  an  address  de- 
livered at  the  Twelfth  Annual  Conference  of  the  National  Tax  Association : 

The  lowest  rate,  3  per  cent:  chewing  gum;  toilet  soaps  and  toilet  soap  pow- 
ders;  automobile  trucks  and  wagons. 

Second  class,  4  per  cent  ("1  cent  for  each  25  cents  or  fraction  thereof"):  per- 
fumes, extracts,  toilet  waters,  cosmetics,  hair  oils,  etc.;  proprietary  medicines. 

Third  class,  5  per  cent:  automobiles  and  motorcycles;  musical  instruments;  pho- 
tographic films  and  plates;  candy;  electric  fans;  thermos  bottles;  automatic  slot- 
device  vending  machines;  jewelry. 

Fourth  class,  10  per  cent  on  sale  price  in  excess  of  stipulated  amounts:  articles 
covered  by  section  904.  The  tax  is  upon  the  price  in  excess  of  stipulated  amounts, 
can  never  exceed  10  per  cent  and  probably  averages  less  than  3  per  cent. 

Fifth  class,  10  per  cent:  sporting  goods;  cameras,  fire-arms  and  ammunition; 
cigar  and  cigarette  holders,  automatic  slot-device  weighing  machines;  liveries,  hunt- 
ing and  riding  habits;  articles  made  of  fur;  yachts  and  pleasure  boats;  sculpture, 
painting  and  statuary;  soft  drinks,  grape  juice,  etc.;  fountain  drinks,  ice  cream 
sundaes,  etc.;  admissions  and  dues  (general  rate  1  cent  for  each  10  cents  or  fraction 
thereof). 

Sixth  class,  15  per  cent:  cereal  beverages. 

Seventh  class,  100  per  cent:  dirk  knives,  brass  knuckles,  etc. 

Probably  no  two  persons  would  agree  with  the  judgments  embodied  in  the 
above  rate  schedules.     Automobile  trucks  and  wagons — articles  of  commercial 

180 


necessity— are  classed  with  chewing  gum  and  toilet  soap  powders  and  taxed  at 
lower  rates  than  musical  instruments,  photographic  films  and  thermos  bottles. 
Perfumes  and  cosmetics  are  taxed  along  with  proprietary  medicines  at  practi- 
cally 4  per  cent,  while  soft  drinks  and  ice  cream — in  many  respects  true  food 
products — are  taxed  at  10  per  cent.  Musical  instruments  and  photographic 
films,  educational  in  their  influence,  are  taxed  at  higher  rates  than  chewing 
gum  and  cosmetics,  but  at  lower  rates  than  cameras  and  works  of  art.  There 
is  no  theoretical  or  practical  basis  for  the  discriminatory  judgments  expressed 
in  these  varying  tax  rates. 

It  is  obvious  that  the  rates  applied  to  the  various  articles  or  objects  of 
taxation  should  be  adjusted,  and  that  the  widest  practicable  discretion  should 
be  given  to  the  Bureau  of  Internal  Revenue  to  collect  these  taxes  in  the  man- 
ner which  is  at  once  most  effective  and  least  irritating  to  the  taxpayers  con- 
cerned. But  these  taxes,  except  possibly  (a)  and  (t)),  infra,  should  not  be 
repealed.  No  taxes  are  so  sound  in  theory  as  those  upon  luxuries  and  non- 
essentials. While  fiscal  necessity  makes  it  impossible  to  reduce  the  heavy  taxes 
imposed  upon  essential  business  it  is  surely  not  time  to  reduce  taxes  on  waste, 
extravagance  and  ostentatious  consumption.  The  fact  that  the  taxpayer  is 
aware  that  he  pays  the  tax  is  a  virtue  and  not  a  defect.  In  only  one  case  should 
taxes  on  semi-luxuries  be  repealed,  i.  e.,  when  they  are  so  widely  evaded  as  to 
threaten  demoralization  of  the  entire  tax  system  and  when  such  evasion  cannot 
be  corrected  witnout  unduly  drastic  or  expensive  administrative  measures. 

(a)  Section  630  of  the  Revenue  Act  of  1918  imposes  a  tax  of  one  cent  for  each  ten 
cents  or  fraction  thereof  of  the  amount  paid  to  any  person  conducting  a  aoda 
fountain,  ice  cream  parlor,  or  other  similar  places  of  business  for  drinks  com- 
monly known  as  soft  drinks  compounded  or  mixed  at  such  place  of  business  or 
for  ice  cream,  ice  cream  sodas,  sundaes,  or  other  similar  articles  of  food  or  drink 
sold  for  consumption  in  or  in  proximity  to  such  a  place  of  business.  How  to 
define  "similar  articles  of  food  or  drinks,"  and  how  to  determine  when  such 
articles  are  intended  for  consumption  "in  proximity  to  such  places  of  business" 
is  an  exceedingly  difficult  task,  as  may  be  gathered  from  the  proposed  amend- 
ments to  this  Section  printed  on  page  29  of  the  Notes  on  the  Revenue  Act  of 
1918.  The  tax  is  very  unpopular.  Moreover,  it  is  not  'collected  from  the  con- 
sumer in  a  material  proportion  of  cases,  and  in  even  larger  proportion  of  cases 
full  return  is  probably  not  made  by  the  dealer  to  the  Government.  It  has,  how- 
ever, many  elements  of  strength.  It  brings  home  the  meaning  of  the  cost  of 
Government  to  many  people  who  seldom,  if  ever,  pay  a  direct  tax;  the  articles 
taxed  are  semi-luxuries;  the  yield  of  $35,000,000  a  year  is  material.  But  the 
tax  covers  too  limited  a  range  of  luxuries  to  warrant  a  demand  for  the  adoption 
of  the  rather  drastic  administrative  measures  which  would  be  necessary  to  in- 
sure a  full  collection  of  this  tax. 

(b)  10%  tax  on  sale  of  goods  in  excess  of  stipulated  amounts:  The  excess-price 
taxes  imposed  by  Section  904  while  justifiable  in  theory  are  very  difiicult  to 
administer.  The  retail  dealer  must  keen  a  separate  account  of  the  tax  collected 
on  each  sale,  and  this  requirement  while  very  burdensome  to  the  honest  dealer 
is  widelv  violated  in  all  probability  by  less  scrupulous  merchants.  The  tax  is 
not  highly  productive  (yielding  only  $6,720,643  in  the  six  months,  July-Decem- 
ber. 1919.  inclusive),  and  it  is  very  faultily  formulated.  "Carpets  and  rugs,  in- 
cluding fibre."  are  taxed  at  an  amount  in  excess  of  $5  ner  sauare  yard,  "except 
imported  and  American  rugs  made  principally  of  wool."  That  is  to  say,  the 
more  expensive  rugs  are  exempt.  Again,  shoes  in  excess  of  $10  a  pair  are 
taxed,  but  the  most  expensive  and  extravagant  dresses  are  exempt. 

(2)  The  taxes  imposed  by  Title  VII  are  highly  productive  (yielding  $296,- 
200,000  in  the  present  fiscal  year)  and  are  generally  satisfactory;  although 
minor  administrative  amendments  are  needed  in  the  provisions  relating  to 
dealers  in  leaf  tobacco.  The  rates  upon  cigars  and  cigarettes  average  le«s 
than  10  per  cent  of  the  selling  prices,  and  are  therefore  lower  than  the  rates 
imposed  upon  soft  drinks  and  ice  cream  by  Section  630  or  upon  admissions 
and  dues  by  Title  VIII.    Although  the  rates  on  cigars  and  cigarettes  have  been 

181 


increased  rapidly  in  recent  years,  the  consumption  of  tobacco  has  not  fallen  off 
materially  and  in  the  case  of  cigarettes  it  has  strikingly  increased.  The  rates 
imposed  by  this  Title  could  be  increased  so  as  to  yield  approximately  $100,000,- 
000  additional  revenue  per  year.     (See  XV.) 

(3)  Title  VIII — Admission  and  Club  Taxes :  These  taxes,  which  yield  about 
J^80,000,000  a  year,  should  not  be  materially  modified.  An  amendment  pro- 
viding that  the  estabhshed  price  for  a  single  admission  by  season  ticket  or  sub- 
scription should  not  be  deemed  to  be  admission  at  a  reduced  rate  is  needed. 

(4)  The  excise  tax  imposed  by  Title  IX  (except  in  Section  904)  should  be 
retained.    The  following  modifications  have  been  suggested : 

(a)  The  rates  on  automobiles  and  motorcycles  (other  than  automobiles,  trucks  and 
wagons),  musical  instruments,  chewing  gum  and  substitutes,  candy,  toilet  soap 
and  soap  powder,  jewelry,  perfumes,  cosmetics  and  patent  medicines  (Section 
907)  be  increased  to  10  per  cent.  Such  an  increase  will  yield  additional  rev- 
enue of  approximately  $240,000,000  per  year. 

(b)  The  Commissioner  of  Internal  Revenue  to  be  given  the  widest  possible  discre- 
tion to  require  the  use,  in  paying  or  accounting  for  these  taxes,  of  serially  num- 
bered sales  tickets  or  slips,  stamps  to  be  affixed  either  to  the  invoice  or  the 
articles  of  sale  when  placed  in  stock  or  on  display  shelves,  or  Government  trad- 
ing stamps  redeemable  for  postage  stamps  and  war  savings  certificates  at  a 
stipulated  proportion  of  their  face  value.    This  administrative  discretion  should 

r  apply  to  all  excise  taxes  imposed.    If  it  were  granted  it  would  be  possible  to 

retain  (with  modifications)  the  taxes  imposed  by  Section  630  and  Section  904, 
the  repeal  of  which  has  been  recommended  in  the  belief  that  Congress  could  not 
be  induced  to  authorize  the  application  of  the  rather  severe  administrative 
methods  necessary  to  insure  efficient  administration  and  full  collection  of  these 
taxes.  In  ordinary  times  such  methods  would  not  be  justifiable;  but  waste 
and  extravagance  are  now  so  rampant  the  need  for  public  revenue  so  grave 
and  the  desirability  so  great  of  bringing  the  cost  of  Government  vividly  to 
the  consciousness  of  the  taxpayer  that  extraordinary  methods  to  accomplish 
these  ends  would  be  entirely  justifiable. 

IX.    MISCELLANEOUS  TAXES: 

(1)  The  taxes  imposed  by  Title  V  of  the  Revenue  Act  are  hardly  defensible 
in  theory,  but  they  yield  about  $284,000,000  per  year  and  should  be  retained  so 
long  as  the  Government  is  engaged  in  paying  off  deficits  from  the  operation  of 
the  railways  occasioned  largely  by  charging  less  than  the  cost  of  service. 

(2)  Section  1000  imposes  on  corporations  a  tax  of  $1  for  each  $1,000  of  the 
fair  average  value  of  the  capital  stock  in  excess  of  $5,000.  The  proper  en- 
forcement of  this  tax  would  require  an  accurate  annual  determination  of  the 
fair  value  of  the  capital  stock  of  nearly  every  corporation  in  the  country, 
which  is  an  unwarranted  and  impossible  administrative  task.  The  tax  should 
either  be  repealed  or  should  be  based  upon  the  book  value  of  the  net  assets  of 
the  corporation.  If  necessary  to  protect  public  utilities  and  other  corporations 
in  distress  the  taxpayer  could  be  authorized  to  prove  in  exceptional  cases  that 
the  fair  value  was  less  than  the  book  value,  in  which  case  the  tax  should  be 
placed  upon  the  fair  value  of  the  stock. 

(3)  The  documentary  stamp  taxes  yield  over  $75,000,000  a  year  and  are 
satisfactory  in  general.  The  rates  are  in  general  low,  and  could — if  additional 
revenue  is  sorely  needed — be  largely  increased,  perhaps  doubled  without  seri- 
ously impeding  commerce  and  business. 

(4)  The  tax  on  employment  of  child  labor  yields  less  than  $1,000  a  year — 
i.  e.,  practically  no  revenue  at  all.  Inasmuch  as  its  retention  or  repeal  depends 
upon  other  than  fiscal  conditions,  the  matter  is  not  here  discussed. 

182 


X.    ADMINISTRATIVE    CENTRALIZATION: 

The  administration  of  the  income  and  profits  taxes  is  unduly  centraHzed  at 
Washington;  but  this  condition  is  largely  unavoidable,  is  fully  recognized  by 
the  Treasury  Department,  and  an  effective  program  of  decentralization  is  being 
carried  out  as  rapidly  on  the  whole  as  circumstances  permit.  The  causes  of 
the  existing  overcentralization  and  the  complexity  of  the  law ;  the  large  amounts 
of.  money  which  frequently  turn  upon  the  most  complicated  and  abtruse  ques- 
tions; and  the  inabihty  of  the  Treasury  Department  to  secure  and  retain  a  suf- 
ficient number  of  qualified  experts  to  maintain  at  various  points  throughout  the 
country  local  service  stations  and  auditing  bureaus  which  could  safely  be  en- 
trusted with  the  power  to  settle  cases.  A  description  of  the  important  steps 
which  have  already  been  taken  to  decentralize  the  administration  may  be  found 
in  the  Report  of  the  Commissioner  of  Internal  Revenue  for  1919,  pages  22-24, 
32-33,36-41. 

(a)  What  is  needed  is  not  so  much  larger  appropriations  as  permission  to  pay  in 
individual  cases  whatever  salaries  may  be  necessary  to  hold  the  most  expert 
auditors  and  examiners,  who  can  command  very  high  salaries  in  private  life. 
An  admirable  training  system  is  now  in  force;  but  the  best  employes  resign 
almost  as  rapidly  as  they  can  be  hired  or  trained.  Of  employes  of  the  Bureau 
of  Internal  Revenue,  during  the  fiscal  year  1919,  receiving  $5,000  or  more  per 
year,  there  were  12  resignations  from  a  force  averaging  10;  of  employes  receiv- 
ing $4,000  or  more  per  year  there  were  28  resignations  from  a  force  of  41;  and 
of  employes  receiving  $3,000  per  year  or  more  there  were  71  resignations  from 
a  force  of  178.  A  larger  number  of  skilled  agents  and  assessors  will,  according 
to  present  administrative  plans,  be  located  at  the  various  local  offices  as  rapidly 
as  qualified  employes  can  be  trained  or  engaged. 

(b)  Constant  pressure  should  be  applied  to  establish  local  service  stations  with 
greater  powers  and  better  men;  but  the  redistribution  of  the  Washington  force 
cannot  effectively  improve  the  service  until  there  is  a  sufiicient  number  of  skilled 
employes  to  "redistribute."  If  a  choice  must  be  made,  however,  prompt  local 
service  is  more  important  than  exact  uniformity  of  treatment,  except  in  cases 
involving  very  large  amounts  of  taxes.  One  of  the  greatest  reforms  possible 
of  achievement  is  the  training  of  a  number  of  skilled  and  trustworthy  auditors 
who,  in  conformity  with  the  English  practice,  could  be  called  on  by  the  taxpayer 
to  make  his  return  from  the  taxpayer's  books  and  records,  thus  completing  in 
one  operation  the  making  of  the  return,  the  field  examination,  and  the  final 
audit.  To  accomplish  this  reform,  however,  would  require  much  higher  salaries 
per  man,  probably  somewhat  larger  appropriations  (though  this  is  by  no  means 
certain),  time,  and  simpler  tax  laws. 

(c)  Fair  and  tactful  but  strict  enforcement  of  federal  tax  laws  is  imperatively  nec- 
essary. The  most  valuable  and  distinctive  characteristic  of  federal  tax  laws 
in  the  past  has  been  the  reputation  which  they  bore  for  strict  and  fearless  en- 
forcement. Without  this  federal  tax  laws  are  likely  to  sink  to  the  status  of  the 
general  property  tax.  To  maintain  this  reputation  it  is  essential  that  the  fed- 
eral tax  laws  should  be  so  reduced  in  number  and  so  simplified  in  their  de- 
mands upon  the  taxpayer  that  they  can  be  enforced  without  excessive  adminis- 
trative cost.  Much  more  attention  in  framing  tax  laws  should  be  given  to  the 
difficulty  and  cost  of  administration,  and  this  done,  the  necessary  appropriations 
to  enforce  the  laws  properly  should  be  made.  During  the  year  1919  the  cost  of 
administering  the  Bureau  of  Internal  Revenue,  which  is  now  saddled  with  a 
number  of  essentially  non-fiscal  functions  such  as  the  Child  Labor  Tax  Law, 
was  $20,573,771,  or  0.534  per  cent  of  the  total  collections  for  the  year.  Com- 
pared with  property  taxes,  state  income  taxes  and  indeed  most  other  taxes,  thig 
is  an  essentially  low  cost  of  administration  and  collection. 

(d)  It  is  not  clear  that  the  appointment  of  collectors  of  internal  revenue  should  be 
placed  on  the  civil  service  basis.  But  it  is  obvious  that  positions  carrying  so 
great  a  load  of  pecuniary  responsibility  should  be  "taken  out  of  politics"  in 
the  sense  that  efficient  collectors  should  be  retained  regardless  of  politics,  and 
incompetent  collectors  dismissed — regardless  of  politics — as  soon  as  their  in- 
efficiency is  demonstrated.  It  is  particularly  untrue  in  any  practical  sense  that 
"there  is  always  a  qualified  man  in  the  dominant  political  party  for  any  va- 
cancy which  may  occur  or  be  made  to  occur."  On  the  contrary,  a  thoroughly 
competent  man  for  a  place  of  this  kind  is  exceedingly  difficult  to  secure  by 
civil  service  or  any  other  method. 

X83 


XI.     OTHER  QUESTIONS  OF  ADMINISTRATION: 

While  there  is  some  doubt  about  the  constitutionality  of  permitting  the 
Treasury  Department  to  make  changes  in  regulations  effective  only  from  the 
date  of  their  approval,  there  can  be  little  doubt  about  the  wisdom  and  expedi- 
ency of  such  a  provision  from  the  standpoint  of  practical  policy;  and  in  order 
to  establish  such  a  policy  Congress  should  authorize  this  procedure  by  statute. 
The  taxpayer  could  be  deprived  of  none  of  his  rights,  which  are  amply  pj:o- 
tected  from  the  constant  annoyance  and  uncertainty  arising  from  change  of 
rulings  with  a  retroactive  application  thereof. 

It  is  highly  important  that  the  Commissioner  of  Internal -Revenue  should 
be  empowered,  with  the  consent  of  the  taxpayer  and  the  public  safeguards 
mentioned  below,  to  make  final  and  conclusive  settlements  of  tax  claims  and 
assessments.  The  reasons  for  this  conclusion  are  thus  fairly  stated  in  the  let- 
ter of  the  Secretary  of  the  Treasury  under  date  of  March  17,  1920,  to  Chairman 
Fordney  of  the  Committee  on  Ways  and  Means: 

This  recommendation  is  of  major  importance.  At  present  the  taxpayer  never 
knows  when  he  is  through.  Every  time  an  old  ruling  is  changed  by  court  decision, 
opinion  of  the  Attorney  General,  or  reconsideration  by  the  department,  the  depart- 
ment feels  bound  to  apply  the  new  ruling  to  past  transactions.  The  necessity  of  con- 
stantly correcting  old  returns  and  settlements  is  as  distressing  to  the  department  as 
it  is  obnoxious  to  the  taxpayer.  But  an  even  more  serious  situation  arises  in  con- 
nection with  the  assessment  qf  back  taxes.  The  tax  return  of  a  large  corporation 
is  likely  to  be  crowded  with  debatable  points  which  the  corporation,  in  the  first 
instance,  usually  decides  in  its  own  favor.  The  auditing  of  these  returns  has  been 
necessarily  delayed  by  the  inability  of  the  Bureau  of  Internal  Revenue  to  engage  and 
hold  a  sufficient  force  of  experts  to  audit  promptly  the  more  complex  and  difficult 
return,  but  when  the  audit  comes  to  be  made  it  ordinarily  brings  to  light  a  large 
amount  of  back  taxes.  A  prompt  determination  and  collecflon  of  smch  back  taxes 
due  would  probably  bring  in  additional  revenue  exceeding  $1,000,000,000.  On  the 
other  hand,  this  situation  must  fill  the  taxpayers  concerned  with  the  gravest  appre- 
hension. If  present  taxes  be  continued  and  a  period  of  industrial  depression  en- 
sues during  which  the  department  finds  the  time  and  the  men  with  which  to  clear 
up  both  current  and  back  taxes  within  the  same  year,  the  result  may  be  highly  dis- 
astrous to  business. 

A  tax  board  of  the  kind  described  should  be  created.  It  should  contain 
at  least  three  representatives  of  the  taxpaying  public  (one  of  them  a  lawyer), 
the  Commissioner  of  Internal  Revenue,  and  the  heads  of  the  principal  divisions 
of  the  Bureau  of  Internal  Revenue — in  particular  the  Solicitor  of  Internal 
Revenue,  the  head  of  the  Income  Tax  Unit,  and  the  head  of  the  Claims  Divi- 
sion. This  composition  or  membership  is  recommended  in  order  that  adminis- 
trative delay  may  be  avoided  by  uniting  in  one  body  the  heads  of  the  most 
important  divisions  of  the  Bureau  who  now  frequently  work  at  cross  purposes ; 
and  bring  home  to  the  administrative  authorities — through  constant  contact 
with  the  public  or  lay  members — the  legitimate  interests  of  the  taxpayer.  The 
powers  of  the  board  should  be  advisory  only — except  in  the  final  settlement  of 
tax  claims  and  assessments  described  above,  in  which  the  public  representa- 
tives should  be  used  to  safeguard  the  important  public  interests  involved — but 
the  lay  members  should  have  the  right  to  make  their  recommendations  or 
opinions  public;  and  they  should  be  authorized  on  their  own  initiative  or  at 
the  request  of  any  committee  of  Congress  to  make  recommendations  to  the 
Congress  regarding  the  amendment  of  the  tax  laws  and  procedure.  The  board 
should  be  made  a  standing  committee  on  the  simplification  of  forms,  proced- 
ure and  laws ;  and  should  be  required  to  make  an  annual  report  or  series  of  rec- 
ommendations on  this  subject. 

[  __:lZ^        184 


APPENDIX  A 

ESTIMATED  INTERNAL  REVENUE  RECEIPTS 

For  the  fiscal  year  ending  June  30,  1920 

Sources  of  Revenue 

(Arranged  in  accordance  with  titles  of  the  Revenue  Act  of  1918) 

TITLES  II  AND  111  Estimated 

Income  and  profits  tax '. $3,750,000,000 

TITLE  IV 

Estate  tax $100,000,000 

TITLE  V 

Transportation  of  freight   $115,000,000 

Transportation  of  express   18,000,000 

Transportation  of  persons   95^000,000 

Seats,  berths  and  staterooms 6^000*000 

Oil  by  pipelines    lO^OOo'oOO 

Telegraph,  telephone  and  radio  messages -. 25,000,000 

Leased  wires,  or  talking  circuits 

Insurance  (life,  marine,  inland,  fire  and  casualty)    15,000,000 

Total $284,000,000 

TITLE  VI 

Distilled  spirits   and  alcoholic  beverages $76,000,000 

Non-beverage   alcohol    44,000,000 

Beverages,  etc.,  non-alcoholic,  Sec.  628 35,000,000 

Beverages,  etc.,  non-alcoholic.  Sec.  630 35,000,000 

Total $190,0007000 

TITLE  VII 

Cigars    $51,000,000 

Cigarettes  160,000,000 

Snuff    6,500,000 

Tobacco,  chewing  and  smoking 73,000,000 

Cigarette  papers  and  tubes 2,000,000 

Floor  taxes 3,700,000 

Total $296,200,000 

TITLE  VIII 

Admissions   to   theaters $76,000,000 

Club  dues   4,000,000 

Total $80,000,000 

TITLE  IX 

Automobiles,  etc $150,000,000 

Pianos,  organs,  phonographs,  etc 7,600,000 

Tennis  rackets,  sporting  goods,  etc 1,250,000 

Chewing  gum    1,000,000 

Cameras    750,000 

Photographic  films  and  plates 400,000 

Candy .' 40,000,000 

Firearms,  shells,  etc 4,000,000 

Hunting  knives,  dirk  knives,  daggers,  etc 20,000 

Portable   electric   fans 400,000 

Thermos  bottles,  etc 160,000 

Cigar  or  cigarette  holders  and  pipes 70,000 

Automatic  slot  device  vending  and  weighing  machines 100,000 

Liveries,  livery  boots  and  hats ^      200,000 

Hunting  and  shooting  garments,  etc '      500,000 

Articles  made  of  fur,  etc 20,400,000 

Yachts,  motor  boats,  etc 100,000 

Toilet  soap  and  toilet  soap  powders .  *. 3,000,000 

Motion-picture  films  leased 3,500,000 

Sculpture,  paintings,   etc 1,250,000 

Carpets  and  rugs,  wearing  apparel,  etc 20,000,000 

Jewelry,  watches,  clocks,  etc 20,000,000 

Perfumes,  cosmetics,  and  patent  and  proprietary  medicines 8,000,000 

Excise  taxes  collected  under  repealed  law 2,400,000 

Total $285,100,000 

185 


ESTIMATED  INTERNAL  REVENUE  RECEIPTS— Continued 

Sources  of  Revenue  . 
(Arranged  in  accordance  with  titles  of  the  Revenue  Act  of  1918) 

TITLE  X 

(  Estimated 

(Special  taxes,  including  taxes  under  certain  other  acts)  Receipts 

Corporations,  capital  stock  tax $75,000,000 

Brokers,  stock,  etc 3,000,000 

Theaters,  museums,  etc 3,500,000 

Bowling  alleys,  billiard  and  pool  tables 3,000,000 

Shooting  galleries  and  riding  academies 100,000 

Passenger  automobiles  for  hire 3,500,000 

Use  of  pleasure  boats,  etc 1,500,000 

Manufacturers  of  cigars,  cigarettes  and  tobacco *  2,100,000 

Narcotics,  including  special  taxes 1,500,000 

Total $93,200,000 

TITLE  XI 

Documentary  stamps,   etc $50,000,000 

Capital   stock   transfers " 15,000,000 

Sales  of  produce,  etc.  (future  deliveries) 8,000,000 

Playing  cards    2,500,000 

Total $75,500,000 

MISCELLANEOUS 

Adulterated  and  process  or  renovated  butter;  mixed  flour $140,000 

Oleomargarine    2,360,000 

Sales  of  condemned  Government  property;  receipts  under  repealed  laws;  and 

other  receipts  not  provided  for  herein 2,500,000 

Total $5,000,000 

Grand  Total $5,159,000,000 


APPENDIX  B 

DIFFERENTIATION  BETWEEN  EARNED  AND  UNEARNED  INCOME 

Differentiation  in  favor  of  so-called  "earned"  as  distinguished  from  "un- 
earned" income  is  not  expedient  in  the  federal  income  tax.  (a)  As  a  matter 
of  administration  such  differentiation  makes  for  complexity,  inasmuch  as  differ- 
ent rates  have  to  be  applied  to  different  parts  of  the  income,  and  the  general 
exemptions,  losses  and  deductions  have  to  be  prorated  against  the  earned  and 
unearned  parts  of  the  income,  (b)  As  a  matter  of  principle  or  theory  it  seems 
untenable  to  hold  that  the  income  of  a  successful  business  man  who  has  inher- 
ited the  business  from  his  father  is  "earned,"  whereas  the  interest  on  a  bond 
which  a  workman  has  bought  with  his  savings  is  called  "unearned."  In  short, 
the  popular  distinction  between  earned  and  unearned  income  is  mainly  false; 
and  what  truth  there  is  in  this  distinction  should  find  its  expression  in  the  in- 
heritance or  estate  tax.  (c)  In  practice  the  heavy  surtaxes  on  the  larger  in- 
comes differentiates  in  a  rough  but  effective  way  against  unearned  income,  since 
the  greater  part  of  the  national  income  which  might  be  called  unearned  is  re- 
ceived by  tax  bearers  subject  to  the  higher  surtaxes,  (d)  Finally,  the  error 
in  the  proposal  to  penalize  unearned  income  by  subjecting  it  to  heavier  taxes 
is  brought  out  by  the  fact  that  such  income  constitutes  for  the  most  part  the 
reward  or  return  upon  savings ;  while  there  is  a  nearly  universal  agreement  that 
savings  should,  if  possible,  be  encouraged  by  reduced  taxation. 

186 


k 


War  Risk  Insurance 


Report  of  Sub-Committee 


FREDERICK  FRELINGHUYSEN 
Chairman 


WAR  RISK  INSURANCE 

War  Risk  Insurance  Act — Scope  and  purpose  —  Act  sustained  country's 
morale — More  liberal  than  previous  pension  laws  as  to  compensation  for  injuries 
or  death — Necessity  of  protecting  the  family  of  man  in  military  service — Life 
insurance — Features  of  War  Risk  Insurance  Act — 1 :  General  Provisions — II : 
Allotments  and  Allowances — These  have  now  become  of  minor  importance — Ad- 
ministrative defects  of  the  Bureau — $600,000,000  disbursed  to  soldiers'  depend- 
ents— Should  Army  and  Navy  Departments  have  handled  all  allotments? — III: 
Compensation  for  death  or  for  total  or  partial  disability — Death  benefit  free — 
One-third  of  soldiers  left  dependents — Burial  expenses  —  Disability  benefits 
free — Total  disability,  temporary  or  permanent — Compensation  was  inadequate 
— Corrected  by  Sweet  Bill — Status  of  Bureau's  work  —  Medical  and  surgical 
treatment  unsatisfactory — Need  for  coordination  of  Bureaus — IV:  Life  Insur- 
ance against  death  or  total  and  permanent  disability  —  Cost  to  taxpayers, 
$700,000,000 — Heavy  lapse  in  insurance  policies — Weakness  in  government  in- 
surance is  inability  to  carry  on  personal  solicitation — Necessity  for  proper  re- 
serve— Personnel  of  Bureau — Converted  policies — Recommendations:  (1)  Work 
of  Vocational  Training  Board  should  be  consolidated  with  War  Risk  Insurance 
Bureau,  and  work  of  the  United  States  Public  Health  Service  should  be  co- 
ordinated therewith — (2)  Holders  of  converted  policies  should  be  permitted  to 
name  any  beneficiary,  and  to  use  their  insurance  as  collateral ;  reserves  should  be 
set  up  with  participating  features;  (3)  Policies  must  be  issued  promptly;  (4) 
Establishment  of  branch  offices  and  collection  of  premiums  through  local  Post 
Officers;  (5)  Efficient  management  can  effect  a  marked  decrease  in  Bureau's 
10,000  personnel,  resulting  in  material  saving. 

WAR  RISK  INSURANCE  ACT: 

Scope  and  Purpose. 

Under  the  heading  "War  Risk  Insurance"  there  are  generally  embraced 
three  main  provisions  of  the  War  Risk  Insurance  Act,  namely: 

(1)  Family  allowances  to  dependents  of  enlisted  men  and  women. 

(2)  Compensation  payable  monthly  for  injuries  received  in  service  or 

for  death  in  service. 

(3)  Life  insurance. 

To  obtain  a  proper  conception  of  the  scope  and  purpose  of  this  Act  one 
must  take  a  retrospective  view  and  look  back  three  years  and  consider  what 
were  the  conditions  in  the  year  1917  when  we  entered  the  war. 

Act  Sustained  Country's  Morale. 

We  were  at  that  time  suddenly  called  upon  as  a  Nation  to  build  up  the 
Great  Army  of  the  United  States  and  to  enroll  the  citizenry  in  defense  of  their 
country.  The  War  Risk  Insurance  Act  was  one  of  the  means  to  protect  the 
morale  of  the  people  both  at  home  and  on  the  fighting  line.  The  men  of  Chateau 
Thierry  and  the  Argonne  were  stronger  and  better  fighters  because  of  this 
Act  and  we  cannot  therefore  always  appraise  its  results  in  monetary  values. 
The  protection  of  the  home  is,  now  as  ever,  the  foundation  of  national  life.  On 
October  6,  1917,  the  War  Risk  Insurance  Act  was  passed,  although  as  a  matter 

189 


of  fact  the  Bureau  of  War  Risk  Insurance  itself  was  created  in  September, 
1914, — -when  we  were  still  a  neutral  nation — to  provide  facilities  for  the  insur- 
ance of  American  vessels  and  their  cargoes  against  war  risks. 

Profit  from  Marine  War  Risk  Insurance. 

Consideration  of  this  marine  insurance  against  war  risks  may,  however, 
be  eliminated,  although  it  is  to  be  noted  that  there  has  been  a  surplus  in  this 
department  of  over  $17,000,000,  which  has  reverted  to  the  United  States  Treas- 
ury, being  the  difference  between  the  premiums  collected  and  the  losses  paid. 

Prior  to  the  passing  of  the  Act  the  pay  of  the  enlisted  men  in  our  military 
forces  had  been  increased  to  practically  double  what  it  had  previously  been. 
In  view  of  this  increase  it  was  thought  that  entrance  into  the  fighting  forces 
did  not  cancel  the  ever  present  moral  obligation  of  a  man,  no  matter  what  his 
circumstances,  to  contribute  to  the  support  of  his  family  or  other  dependents ; 
hence,  the  provision  for  compulsory  allotment  from  military  pay  supplemented 
with  Government  family  allowance  as  a  contribution  to  the  support  of  the 
man's  dependents  left  at  home.  The  civic  fabric  of  the  country  had  to  be  main- 
tained. 

Pension  Benefits. 

The  compensation  or  pension  feature  of  the  Act,  generally  known  as  Arti- 
cle III,  was  inserted  to  take  care  of  the  vast  pension  problem  which  is  neces- 
sarily attendant  upon  every  war.  It  was  thought  better  to  establish  in  advance 
a  system  to  provide  specfic  indemni-ies  for  death  or  disability  occurring  in 
the  military  forces  rather  than  procrastinate  and  encourage  special  legislation 
and  special  claims  after  the  war.  The  fundamental  idea  is  akin  to  that  now 
operative  for  civilian  employees  of  the  Federal  Government  and  to  industrial 
workers  of  the  majority  of  states  through  the  workings  of  the  various  Work- 
men's Compensation  laws.  The  soldier  served  his  country  and  the  later  stood 
ready  to  give  him  financial  protection  should  he  suffer  physical  injury  as  a  re- 
sult of  his  service. 

Liberal  Provisions  as  to  Injuries  or  Death. 

The  scheme,  even  as  originally  enacted,  was  more  liberal  than  any  pension 
law  ever  passed  by  Congress.  No  distinction  was  drawn  between  enlisted 
men  and  officers  in  the  amount  of  compensation  granted  for  injuries  or  death. 
All  were  treated  as  equal.  The  disability  of  the  humblest  private  was  con- 
sidered as  serious  as  the  disability  of  the  greatest  general.  The  amount  payable 
depended  upon  the  man's  injuries  and  his  family  status.  Again,  the  factor  of 
home  protection  entered.  In  this  respect  the  Act  differs  from  the  Workmen's 
Compensation  laws  for  in  the  latter  the  amount  of  compensation  varies  with 
the  injured  man's  wage. 

Family  Protection. 

The  war  risk  compensation  is  a  complement  of  the  Selective  Service  law.  If 
the  conscripted  provider  of  the  family  suffers,  the  recompense  must  take  into 
account  the  family  need,  for  the  family  is  really  conscripted  when  the  bread- 
winner is  drawn  for  service. 

Life  Insurance. 

The  third  provision — that  of  life  insurance  to  the  fighting  forces — has 
served  practically  to  give  the  omnibus  name  to  all  of  the  Bureau  of  War  Risls 
Insurance  activities,  namely.  War  Risk  Insurance,  and  as  a  result  has  caused  no 

190 


little  confusion.  As  a  democracy  we  called  our  men  to  be  soldiers  without  re- 
gard to  class  or  creed,  and  as  the  commercial  insurance  companies  could  not 
insure  men  entering  the  army  or  navy  and  therefore  about  to  be  subject  to  the 
special  hazard  of  war  without  either  charging  large  extra  premiums  or  else  in- 
viting their  own  bankruptcy,  which  would  be  a  betrayal  of  trust  to  their  exist- 
ing policyholders.  Congress  recognized  these  facts  and  stood  ready  to  restore 
every  service  man's  insurability  without  discrimination  by  underwriting  a  life 
insurance  policy  granted  in  war  times  but  at  peace  time  premium  rates,  the  Gov- 
ernment to  pay  all  extra  costs. 

Cost  to  Taxpayers. 

These  extra  costs  amount  to  over  $700,000,000,  but  this  is  not  immediately 
felt  as  the  payments  are  spread  over  20  years,  the  insurance  being  payable  in 
monthly  instalments. 

This  far-reaching  provision  was  an  added  incentive  to  voluntary  enlist- 
ments as  a  prospective  soldier  knew  that  should  he  give  his  life  for  his  country 
his  dependents  would  be  protected  by  his  war  risk  insurance. 

95%  of  Men  Insured. 

The  taking  of  this  insurance  was  voluntary  on  the  part  of  the  man ;  but, 
as  a  matter  of  fact,  over  95%  of  the  military  forces  took  advantages  of  the 
country's  offer  and  insured  themselves  for  an  average  policy  of  about  $9,000,  the 
premium  charged  covering  only  temporary  protection  at  peacetime  rates,  all 
war  costs  and  expenses  being  borne  by  the  Government.  The  insurance  could  be 
taken  for  amounts  up  to  $10,000,  which  was  the  maximum.  Forty  billion  dol- 
lars of  insurance  was  issued,  being  greater  than  the  total  of  all  other  insurance 
in  the  United  States,  including  industrial  and  fraternal  insurance. 

Value  of  Human  Life. 

In  allowing  the  granting  of  an  amount  as  great  as  $10,000,  the  conception 
of  the  economic  value  of  human  life  therefore  took  a  huge  step  forward,  be- 
cause heretofore  the  average  life  insurance  carried  by  the  "man  in  the  street" 
did  not  amount  to  more  than  $2,500.  But  the  United  States  considered  $10,000 
insurance  as  an  essential  amount  of  protection  even  when  granted  in  addition 
to  the  free  compensation  benefits  for  death  or  injuries  occuring  in  the  line  of 
duty.  Unfortunately,  this  conception  has  not  been  able  to  stand  the  test  of 
time.  Since  the  Armistice  the  insurance  has  lapsed  and  been  reduced  by  the 
wholesale. 

Heavy  Lapse  Since  Armistice. 

Of  the  $40,000,000,000  insurance  issued  only  a  minor  fraction  remains.  At 
one  time  over  75%  of  the  insurance  had  lapsed  because  the  discharged  sol- 
diers did  not  pay  their  premiums.  The  insurance  that  is  being  retained  is  for  a 
much  lower  general  average  amount.  The  Government  is  bending  every  effort 
to  have  a  greater  number  keep  their  insurance  in  force  and  retain  as  much 
protection  as  possible.  All  ex-service  men's  organizations  are  co-operating — as 
are  many  other  voluntary  organizations — to  this  end. 

FEATURES  OF  WAR  RISK  INSURANCE  ACT 

Let  us  examine  in  more  detail  the  provisions  of  the  Act  and  the  result  of 
its  operations.  The  War  Risk  Insurance  Act  is  divided  into  four  Articles: 
I.  General  Provisions;  II.  Allotments  and  Allowances;  III.  Compensation;  IV. 
Insurance.  ' 

191 


I.  GENERAL  PROVISIONS 

Article  I  provides  for  the  organization  of  the  Bureau  and  the  necessary 
regulations,  and  defines  the  terms  used  in  the  Act.  It  need  not  be  discussed  ex- 
cept to  say  that  the  provisions  for  and  salaries  of  administrative  officers  are 
perhaps  too  restricted  to  secure  the  expert  management  required  by  so  large 
an  undertaking. 

II.  ALLOTMENTS  AND  ALLOWANCES 

The  allotments  and  allowances  feature  of  the  Act  applies  only  to  enlisted 
men  and  women.  All  married  men  must  contribute  to  the  .support  of  their 
families  except  where  exemption  is  allowed  for  cause.  All  other  allotments  are 
voluntary.     The  following  is  an  illustration  of  the  present  scale: 

Allotment  from  Allowance  granted  by  Government 

pay  per  month.  if  allotment  is  in  favor  of 

$15.00  Wife  $15.00 

Wife  and  child  25.00 

Wife  and  2  children 32.50 

Wife  and   3  children  37.50 

Wife  and  4  children  42.50 

15.00  1  parent    dependent  10.00 

15.00  2  parents  dependent   20.00 

20.00  Wife  and  parent  dependent - 25.00 

20.00  Wife  and  child  and  2  parents  dependents 45.00 

Prior  to  July,  1918,  the  Bureau  of  War  Risk  Insurance  paid  all  allotments 
whether  carrying  Government  allowances  or  not,  and  also  prior  to  that  time 
the  Act  had  provided  for  a  sliding  scale  of  allotments  depending  upon  rank  and 
pay.  This  scale,  owing  to  its  many  complications,  very  seriously  hampered  the 
"paper  work"  in  the  services  and  in  the  Bureau.  This  was  rectified  on  June 
25,  1918,  by  an  amendment  making  the  allotment  a  flat  amount.  The  Army  and 
Navy  at  the  same  time  insisted  that  they  have  charge  of  all  voluntary  allot- 
ments without  Government  allowances  and  insisted  that  new  application  forms 
must  be  completed  by  the  men.  This  attitude  taken  after  eight  months  of  oper- 
ation resulted  in  a  great  deal  of  confusion  and  the  blame  was  generally  placed 
at  the  Bureau's  door,  where  it  really  did  not  belong. 

Allotments  and  Allowances  Now  of  Minor  Importance. 

The  allotments  and  allowances  feature  automatically  cease  four  months 
after  declaration  of  peace  so  as  far  as  the  War  Risk  Insurance  Bureau  is  con- 
cerned the  whole  matter  of  allotments  and  allowances  now  is  of  minor  impor- 
tance. 

Did  the  Bureau  Fail  in  Its  Service?  ' 

It  was  this  feature,  however,  that  put  the  Bureau  in  such  disrepute  with 
the  public.  The  Act  was  passed  on  October  6,  1917,  and  the  allowances  be- 
came operative  in  November.  No  provision  had  been  possible  for  prior  or- 
ganization of  the  Bureau,  there  was  practically  no  office  space  available,  equip- 
ment was  scarce  and  proper  personnel  was  impossible  to  procure. 

Checks  to  soldier's  dependents  were  delayed  or  never  sent  at  all,  grievious 
mistakes  in  policy  and  in  administration  occurred  and  practically  every  one  con- 
nected with  this  work  lacked  experience  and  many  had  not  a  broad  enough 
view  to  permit  a  sane  and  prompt  administration  of  what  after  all  was  mainly 
the  soldiers'  own  funds.  From  this  disrepute  the  Bureau  will  probably  never 
recover.  It  was  not  until  after  the  Armistice  that  proper  systems  were  in- 
stalled and  checks  were  mailed  with  consistent  regularity.     Today  only  a  few 

192 


thousand  need  to  be  sent  out  monthly  and  the  staff  has  been  very  much  reduced 
and  will  ultimately  be  disbanded. 

$600,000,000  Disbursed  to  Soldiers'  Dependents. 

The  Bureau,  however,  despite  all  iis  stumblings  and  difficulties,  has  sent 
out  nearly  20,000,000  checks  for  about  $600,000,000  to  the  dependents  of  soldiers 
in  the  service.  Checks  went  to  over  one  and  one-half  million  families,  the  heav- 
iest month  being  November,  1918,  when  over  $57,000,000  was  disbursed  in 
checks  sent  to  all  states  in  the  Union.  The  greatest  difficulties  were  in  keepmg 
track  of  changes  in  address,  family  status  and  personal  identification.  It  was 
not  until  the  Tuscania  was  lost,  nearly  a  year  after  the  war  began,  that  the 
system  of  giving  numbers  to  individual  soldiers  was  commenced  by  the  Army, 
and  when  one  considers  the  extraordinary  number  of  men  with  similar  names 
one  realizes  what  the  problems  of  identification  without  serial  numbers  meant. 
Thus  there  were  60,000  Smiths  and  over  20,000  Andersons. 

It  should  be  noted  that  the  Government  allowance  continues  for  one  month 
after  discharge  from  the  service,  so  a  discharged  soldier  with  dependents  got 
his  $60  bonus  and  his  one  month's  Government  allowance. 

It  has  been  suggested  that  instead  of  a  bonus  or  "adjusted  Compensation" 
to  all  ex-service  men  that  the  Government  return  all  allotments  deducted  from 
pay.  This  would  in  the  main  mean  that  men  having  dependents  would  have 
returned  to  them  the  moneys  contributed  by  them  to  their  families'  support. 
In  this  manner  $300,000,000  would  be  returned.  Identification  would  have  to  be 
established  and  the  disbursements  could  probably  only  be  made  on  written  ap- 
plication. 

In  looking  back  one  realizes  that  it  might  have  been  a  great  deal  better 
to  have  allowed  the  War  'Department  and  the  Navy  Department  to  handle  from 
the  beginning  their  own  allotment  and  allowance  work  and  not  to  have  saddled 
a  new  organization  with  such  a  huge  task.  The  responsibility  would  then  have 
been  centralized. 

III.  COMPENSATION 

Article  III  of  the  War  Risk  Insurance  Act  deals  with  compensation  payable 
for  death  or  for  total  or  partial  disability  incurred  while  in  the  military  or 
naval  service.  It  is  distinct  and  apart  from  the  life  insurance  against  death  or 
total  permanent  disability  provided  by  Article  IV.  This  Article  touches  the 
disabled  soldier  very  closely  and  it  is  around  this  section  that  so  much  discus- 
sion has  arisen. 

Death  Benefit— Free. 

For  death  in  line  of  duty  the  following  compensation  is  paid : 

If  the  man  leaves — 

Widow $25.00 

Widow  and  1  child. 35.00 

Widow  and  2  children 47.50 

(With  $5.00  for  each  additional  child  up  to  two) 
Widowed  mother  (dependent) 20.00 

Etc. 

These  provisions  were  in  the  original  Act  and  have  not  been  amended. 
Most  soldiers  who  died  carried  Government  insurance  so  that  a  widow  in  nearly 
all  cases  would  get  in  addition  the  monthly  payment  under  $10,000  insurance, 
namely,  $57.50.  To  date  over  40,000  cases,  paying  over  $1,100,000  a  month, 
have  been  awarded  on  account  of  death  in  line  of  duty. 

193 


One-third  of  Soldiers  Left  Dependents. 

The  difference  between  40,000  and  the  total-casualties  suffered  by  our  forces 
is  accounted  for  by  the  fact  that  only  about  one-third  of  the  soldiers  had  wives 
or  other  dependents.  If  the  principle  of  paying  only  to  wives  or  other  depend- 
ents had  been  applied  also  to  the  life  insurance  granted  in  Article  IV,  about 
$500,000,000  in  claims  would  have  been  saved.  Or,  in  other  words,  if  the  com- 
pensation benefit  for  death  or  total  permanent  disability  had  been  increased  by 
$57.50  a  month  and  no  life  insurance  granted  at  all  the  taxpayers  would  be 
saved  $500,000,000. 

Burial  Expenses. 

In  addition  to  paying  death  benefits  the  Government  pays  up  to  $100  for 
burial  expenses.  About  30,000  such  disbursements  have  been  made,  costing 
$2,000,000. 

The  work  in  connection  with  all  of  these  payments  and  adjudication  ot 
death  claims  is  well  up-to-date  and  there  has  been  little  criticism  on  this  ac- 
count. 

The  Bureau  had  time  to  prepare  and  anticipate  its  work  and  therefore  was 
more  or  less  ready  to  handle  it  when  it  came.  The  Bureau  did,  however,  for 
many  months  hold  up  many  claims  where  the  dependent  was  receiving  Gov- 
ernment insurance  on  the  theory  that  the  receipt  of  such  insurance  money  wiped 
out  the  dependency.    This  attitude  was  reversed  early  in  1919. 

Disability  Benefits — Free. 

For  disability,  either  partial  or  total,  permanent  or  temporary,  the  Article 
as  it  was  originally  passed  provided  as  follows: 

Total  Disability  (temporary  or  permanent). 

Bachelor 

~  Man  with  wife „ 

Man  with  wife  and  1  child 

Man  with  wife  and  2  children 

Man  with  wife  and  3  children „.. „._ „. 

Man  with  1  child 

(with  $10  for  each  additional  child  up  to  two) 
Man  with  mother  or  father  (dependent) 10    "  " 

Compensations  for  partial  disability  (either  temporary  or  permanent)  were* 
percentages  of  the  above  depending  upon  the  reduction  in  earning  capacity  re- 
sulting from  the  injury.  However,  for  the  loss  of  both  feet  or  both  hands  or 
eyes  the  compensation  was  at  the  rate  of  $100  per  month. 

Compensation  Found  Inadequate. 

While  these  rates  of  compensation  were  higher  than  those  provided  in 
any  previous  pension  law,  it  soon  became  evident  that  they  were  grieviously  in- 
adequate under  present  day  standards  of  living.  The  Congress,  after  having 
extensive  hearings  on  which  many  persons,  including  the  American  Legion, 
were  heard,  passed  the  Sweet  Bill  in  December,  1919,  liberalizing  the  relief 
given  to  wounded  and  disabled  veterans.  The  benefit  given  by  this  Bill  more 
than  doubled  those  previously  granted  and  has  done  much  to  allay  the  dissatis- 
faction which  has  existed  amongst  discharged  service  men  as  to  the  Govern- 
ment payments. 

The  schedule  of  compensation  payments  by  the  Sweet  Bill  is  as  follows: 

194 


;30 

per 

month 

45 

« 

55 

« 

65 

« 

75 

" 

40 

" 

Disability  (total  but  of  a  temporary  nature) 

Bachelor .  ...  $  80 

Man  with  wife 90 

Man  with  wife  and  1  child    .  95 

Man  with  wife  and  2  or  more  children  100 

Man  with  1  child 90 

(with  $5  for  each  additional  child) 
Man  with  mother  or  father  (dependent) „, 10  each 

Disability  (Partial  and  of  a  temporary  na  ture) 

Percentages  of  above. 
Disability  (Total  and  of  a  permanent  nature) 

$100  per  month. 
Disability  (Partial  but  of  a  permanent  nature) 

$100  per  month. 
Loss  of  legs,  eyes  or  feet,  same  as  before. 
Double  total  disability,  such  as  loss  of  eyes  and  hands 

$200  per  month. 

The  new  scale  is  a  great  step  in  advance  of  the  previous  one.  A  bachelor 
who  is  totally  disabled  for  the  time  being  now  gets  $80  per  month  instead  of 
$30,  while  a  man  who  has  lost,  say,  one  leg,  gets  a  percentage  (say  50%) 
of  $100  instead  of  a  percentage  of  $30.  The  American  Legion  recommenda- 
tions on  this  legislation  do  not  differ  much  from  what  was  finally  enacted. 

Disability  (Total  but  of  a  temporary  nature) 

Original  Sweet  Legion 

Family  status                                                                            Law  Bill  request 

Bachelor  _._.... $30  -        $80  $80 

With  wife .._ ......_ - 45  90  95 

Wife  and  one  child 55  95  105 

Wife  and  two  or  more  children. ...., 65  100  112.50 

For  each  child  above  two           _                ,                             5 

No  wife,  one  child...  .                 40  90  90 

No  wife,  two  children                             _     .                               50  95  95 

No  wife,  three  children                           ,                                   55  100  100 

No  wife,  four  children                     .     -     ..                             60  105  110 

For  each  child  above  four               .       _   „                              5 

The  Legion  recommended  also  that  additional  sums  over  and  above  the 
$100  per  month  should  be  paid  for  total  and  permanent  disability  when  the 
disabled  man  had  dependents. 
Cost  of  Sweet  Bill. 

The  Sweet  Bill  legislation  means  increased  payments  of  about  $80,000,000 
a  year  for  some  years  to  come. 

One  singular  result  of  the  Sweet  Bill  has  been  that  many  ex-service  men  are 
now  making  claim  for  the  first  time  for  disability  compensation  payments,  in 
view  of  the  larger  amounts  payable.  In  March,  1920, — 16  months  after  the 
Armistice — about  20,000  ex-service  men  filed  claims. 

Status  of  Bureau's  Work. 

The  following  shdws  the  progress  made  by  the  Bureau  of  War  Risk  Insur- 
ance in  awarding  disability  claims : 

Disability  Claims 

Allowed  to  June  30,  1919 .* - 31,785 

Allowed  to  Sept.  30,  1919 „ - 71,757 

Allowed  to  March  31, 1920 over  146,000 

A  considerable  number  have  been  disallowed  because  the  disability  did  not 
rate  higher  than  10% — the  minimum  under  the  law. 

It  will  be  seen  that  in  the  six  months  ending  March,  1920,  the  Bureau  has 
awarded  as  many  claims  as  it  had  in  all   the  months  previous  to  that  time. 

195 


The  amount  of  the  monthly  payments  on  the  awarded  cases  is  over  $6,000,000. 
The  amount  of  current  disbursements  is,  however,  less  than  this  amount  ow- 
ing to  the  fact  that  over  400  of  the  disabled  men  have  died  since  receiving 
awards  and  many  have  gotten  better  and  payments  reduced. 

The  number  of  cases  pending  at  March,  1920,  was  over  80,000.  The  Bu- 
reau has  not  yet  quite  caught  up  because  it  is  receiving  more  claims  than  it 
is  disposing  of,  but  this  situation  will  not  continue.  It  is  of  vital  importance 
to  the  country  and  to  the  disabled  soldier  that  the  pending  claims  be  speedily 
reduced  and  prompt  settlement  made.  There  is  no  greater  debt  than  that  of 
the  nation  to  its  disabled  veterans  and  there  must  not  be  allowed  any  ineffi- 
ciency in  administration  wnich  might  tend  to  dishonor  that  obligation. 

Medical  and  Surgical  Treatment. 

The  Bureau  is  also  charged  with  the  duty  of  giving  free  medical  and  sur- 
gical treatment  to  disabled  veterans  and  providing  artificial  limbs  and  other 
prosthetic  appliances.  This  function  is  being  administered  by '  the  Public 
Health  Service  through  its  own  hospital  facilities  as  far  as  possible.  Owing, 
however,  to  the  lack  of  available  and  proper  hospitals  and  sanitaria,  there  has 
been  much  dissatisfaction  with  the  treatment  of  ex-service  men.  Congress  has, 
however,  given  large  appropriations  to  provide  the  needed  facilities  and  condi- 
tions are  being  rapidly  improved.  It  is  to  ba  feared  that  the  Public  Health  of- 
ficers did  not  at  all  times  take  a  proper  personal  interest  or  sympathetic  at- 
titude toward  the  disabled  men,  and  considerable  bitterness  has  ensued. 

Need  for  Co-ordination  of  Bureaus. 

The  Public  Health  Service  is  under  the  Treasury  Department  as  is  the 
War  Risk  Bureau,  but  the  responsibility  nevertheless  for  any  maladministra- 
tion is  somewhat  divided.  All  work  as  atf  ecting  the  ex-service  man  should  be 
coordinated  and  responsibility  put  with  the  corresponding  authority  under  one 
active  directing  head.  In  this  connection  the  work  of  the  Federal  Board  for 
Vocational  Education  should  be  assimilated  with  the  Bureau  activities  so  t-hat 
the  disabled  soldier  would  have  but  one  agency  to  deal  with,  and  thus  receivb 
prompt  and  more  direct  attention.  There  have  been  too  many  delays  in  giving 
men  proper  medical  treatment  and  too  many  delays  in  putting  men  into  the  voca- 
tional training  that  the  country  wished  them  to  have  so  Xhat  they  would  be 
better  fitted  to  carry  on  in  the  days  to  come.  The  Pension  Bureau  might  also 
be  put  under  the  same  directing  head.  If  all  this  were  done,  much  overhead  ex- 
pense and  Gliplication  of  effort  would  be'  eliminated  and  it  would  result  in  all 
soldiers  being  better  served  than  at  present. 

IV.  LIFE  INSURANCE 

Article  IV  of  the  War  Insurance  Act  deals  with  life  insurance  against 
death  or  total  and  permanent  disability.  The  provision  is  that  "in  order  to 
give  to  every  commissioned  officer  and  enlisted  man  .  .  .  when  employed 
in  active  service  .  .  .  greater  protection  fojr  themselves  and  their  de- 
pendents than  is  provided  in  ArtiSe  III,  the  United  States  shall  grant  insur- 
ance    .     .     .     for  not  more  than  $10,000." 

Although  the  aim  as  above  was  to  give  greater  protection  to  the  men  and 
their  dependents,  the  beneficiary  of  the  insurance  could  be  only  a  spouse,  child, 
grandchild,  parent,  brother  or  sister.  The  term  parent  included  grandfather, 
grandmother,  stepfather  and  stepmother;  and  the  term  brother  or  sister  in- 

196 


eluded  stepbrothers  and  stepsisters.  By  the  Sweet  Bill  persons  who  have  stood 
in  loco  parentis  to  the  soldier  were  also  included  as  permitted  beneficiaries. 
The  question  of  dependency,  although  brought  out  in  the  purpose  of  the  section, 
was  not  carried  through  to  the  permitted  beneficiaries.  If  it  had,  $500,000,000 
would  have  been  saved. 

The  insurance  granted  was  monthly  term  insurance  (tnuch  similar  to  fire 
insurance)  at  peace  time  rates  without  any  addition  for  expenses,  the  Govern- 
ment paying  all  war  costs  and  all  overhead  expenses.  The  premiums  charged 
covered  only  a  minor  fraction  of  the  risk.  In  order  to  give  men  time  to  apply 
for  insurance,  automatic  insurance  for  120  days  after  enlistment  was  granted 
free  for  $4,500.    This  feature  has  cost  $25,000,000. 

There  have  been  in  all  abouj  125,000  claims,  aggregating  over  $1,000,000- 
000  of  insurance.  Included  in  the  figures  are  over  3,000  claims  for  over  $28,- 
000,000  payable  to  men  adjudged  totally  and  permanently  disabled.  There  has 
been  very  little  delay  in  settling  these  claims. 

Cost  to  Taxpayers. 

The  difference  between  the  premiums  received  and  the  amount  of  claims  is 
about  $700,000,000,  which  is  the  amount  to  be  borne  by  the  taxpayers  the  next 
twenty  years.  In  a  few  years  this  msurance  will  call  for  annual  appropriations 
of  $70,000,000  to  be  made  by  Congress  to  support  the  payment  of  these  war 
claims. 

All  term  insurance  is  payable  in  monthly  instalments  of  $57.50  per  $10,000 
of  insurance,  over  a  period  of  twenty  years.  This  was  done  so  that  the  de- 
pendents would  have  a  guaranteed  income  for  twenty  years.  After  the  Ar- 
mistice, however,  when  men  began  to  consider  converting  their  insurance  into 
permanent  form,  there  was  an  insistent  demand  for  lump  sum  payments,  and 
this  was  granted  under  converted  insurance  by  the  Sweet  Bill.  The  American 
Legion  desires  the  same  privileges  under  term  insurance  on  claims  that  may 
arise  in  the  future,  but  the  wisdom  of  such  a  change  is  questionable. 

Administrative  Defects  of  Bureau. 

Up  to  the  Armistice,  when  the  activities  of  the  Insurance  Board  were 
mainly  that  of  receiving  and  filing  applications  and  keeping  the  necessary  rec- 
ords, it  functioned  really  well.  Up  to  that  time  the  premiums  were  automati- 
cally deducted  from  the  men's  pay  through  the  military  organization  and  the 
Bureau  received  them  in  bulk  from  the  Directors  of  Finance. 

With  the  demobilization  of  the  Army  and  Navy  it  became  the  duty  of -the 
Bureau  to  keep  in  touch  with  the  men  in  civil  life  and  collect  the  necessary 
monthly  premiums  from  them.  The  Bureau  was  not  equal  to  the  task.  It  was 
swamped  with  notices  of  discharges  from  the  service,  and  found  itself  unable 
to  reach  a  large  percentage  of  ex-service  men  through  change  in  address.  Mail 
was  unanswered,  or  else  answers  unduly  delayed.  Many  letters  were  answered 
by  form  letters  which  should  have  had  an  individual  personal  reply.  Many  men 
felt  they  could  not  keep  up  ^10,000  life  insurance,  and  this,  taken  in  conjunction 
with  the  general  dissatisfaction  with  the  Bureau's  administration,  has  resulted 
in  a  very  heavy  lapse  rate  of  the  insurance.  In  December,  1919,  it  was  an- 
nounced by  the  Director  that  72%  of  the  insurance  was  lapsed  and  the  men 
without  protection.  Lately,  however,  the  service  of  the  Bureau  has  been  greatly 
bettered.  Many  ex-service  men  are  now  in  the  employment  of  the  Department 
and  a  more  intelligent  treatment  of  the  problems  is  being  administered. 

A  recent  announcement  from  the  Treasury  Department  says : 

197 


"  It  is  not  to  be  denied  that  ex-service  men  and  women  dealing  with  the  Bureau 
have  just  reason  to  criticise  and  to  complain  by  reason  of  the  Bureau's  neglect  to 
respond  promptly  and  accurately  to  all  communications  addressed  to  it. 

"Thousands  of  service  men  whose  letters  in  the  past  frequently  failed  to  accom- 
plish desired  results,  have  criticised  the  Bureau  for  delays  in  answering  letters,  for  an- 
swering them  unsatisfactorily  or  incorrectly,  or,  in  some  instances,  for  failing  to  make 
replies.  In  applying  for  reinstatement  of  insurance,  they  frequently  complained  that 
the  receipt  for  the  money  sent  for  reinstatement  was  not  received  until  after  so  much 
time  had  elapsed  that  the  insurance  had  again  become  lapsed,  necessitating  still  an- 
other application  for  reinstatement.  Complaints  also  were  made  that  in  some  cases 
premium  notices  were  received  by  service  men  calling  for  the  payment  of  premiums 
which  the  service  men  had  already  sent  to  the  Bureau. 

"The  'zero  hour'  has  been  reached  and  passed  by  the  Bureau  of  War  Risk  Insur- 
ance. 

"The  Bureau,  however,  faces  the  problem  of  its  future  accomplishment  with  com- 
plete confidence  that  the  determined  aid  and  earnest  endeavor  of  the  personnel  at  its 
command  must  win  the  approval  and  endorsement  of  the  ex-service  man  whose  wel- 
fare constitutes  the  object  of  its  existence." 

As  the  giving  of  prompt  and  adequate  service  is  a  very  important  function 
of  a  life  insurance  organization,  it  is  to  be"  hoped  that  the  Bureau's  aims  as  to 
the  future  will  be  realized  and  that  ex-service  men  will  receive  the  attention 
they  must  have  if  their  insurance  is  to  be  of  the  value  it  should  be.  Efforts 
should  be  made  to  get  a  large  number  of  men  to  retain  their  insurance,  thus 
continuing  the  Protection  of  the  Home. 

Converted  Insurance. 

The  forms  of  the  converted  policies  should  receive  attention.  Under  the 
law  the  premiums  are  net  premiums  without  addition  for  expenses,  and  insure 
against  death  or  disability,  although  the  premium  charged  is  only  a  "death 
loss"  premium.  The  disability  provision  is  practically  an  old  age  pension.  It 
has  been  suggested,  and  we  think  it  proper,  that  the  United  States  should  bear 
the  disability  cost,  and  let  the  ex-service  men  bear  their  own  death  risk.  If 
this  is  done,  the  converted  insurance  will  otherwise  be  self-supporting  except 
for  overhead  expenses,  which  are  in  any  event  born  by  the  Government.  This 
suggestion  is  embodied  in  the  Wason  Bill  reported  by  the  Interstate  and  For- 
eign Commerce  Committee  of  the  House. 

Necessity  of  Proper  Reserves. 

It  must  not  be  forgotten  that  the  life  insurance  granted  by  the  Government 
is  level  premium  insurance.  Under  this  plan  the  level  premiums  are  more 
than  is  necessary  to  cover  the  death  losses  in  the  early  policy  years  and  are 
only  sufRcient  to  cover  the  death  losses  in  the  later  policy  years,  provided  the 
overpayments  of  the  early  years  are  properly  invested.  This  need  for  the  re- 
serve is  recognized  in  the  insurance  laws  of  the  various  states.  The  converted 
policies  issued  by  the  Government  promise  dividends  to  policyholders.  One  of 
the  principal  sources  of  dividends  is  excess  interest  earnings  on  the  policy  re- 
serve. The  reserves  under  the  Government  policies  must  be  invested  at  3>4  % 
interest  to  enable  the  policies  to  be  self-supporting.  No  dividends  from  interest 
are  possible  unless  the  reserves  are  invested  to  return  more  than  3>4%  inter- 
est. According  to  the  testimony  given  by  the  DiVector  af  the  Bureau  of  War 
Risk  Insurance  before  the  House  Committee  on  Expenditures  in  the  Treasury 
Department,  "all  premiums  collected  during  the  war  and  today  are  deposited 
under  a  certain  account  in  the  Treasury,  etc."  While  there  seems  to  be  little 
objection  to  such  a  course  so  far  as  the  term  insurance  is  concerned,  a  different 
plan  should  be  followed  with  the  converted  policies.  Steps  should  be  taken  to 
see  that  the  reserve  funds  required  for  the  converted  policies  should  be  invested 
so  as  to  secure  the  maximum  interest  earnings  consistent  with  the  security  of 

X98 


the  investment.  It  is  only  by  such  a  course  that  insurance  can  be  furnished  by 
the  Government  at  the  minimum  of  cost.  It  should  not  be  forgotten  that  com- 
mercial companies  are  today  furnishing  their  policyholders,  who  have  been  in- 
sured for  a  number  of  years,  insurance  at  a  cost  less  than  the  net  rate 
charged  by  the  Government  under  its  converted  policies.  The  insured  may  con- 
tinue, however,  the  cheap  term  insurance  without  conversion  for  five  years 
after  the  proclamation  of  peace. 

Choice  of  Beneficiaries. 

The  class  of  permitted  beneficiaries  under  the  converted  insurance  is  still 
a  restricted  one,  although  it  was  expanded  by  the  Sweet  Bill.  As  the  men  are 
paying  a  peacetime  premium  for  a  peacetime  risk,  they  ought  to  have  the 
opportunity  to  name  any  beneficiary  they  wish,  just  as  they  have  the  privilege 
in  commercial  companies.  The  policy  should  allow  the  insured  to  use  his  insur- 
ance as  collateral.  In  modern  business  life  the  advantage  of  being  able  to  pledge 
a  policy  of  life  insurance  as  security  is  sufficient  for  many  men  to  drop  their 
Goveriiment  insurance  for  insurance  in  private  companies,  irrespective  of  any 
difference  in  cost. 

Need  of  Solicitation. 

Over  100,000  men  have  converted  their  insurance  for  over  $400,000,000,  but 
many  more  must  do  so,  otherwise  the  insurance  features  of  the  Act  will  have 
failed  to  furnish  any  great  lasting  benefits.  One  cannot,  however,  expect  the 
huge  totals  obtaining  during  the  war.  Insurance  must  be  sold,  and  there  must 
be  a  personal  incentive  behind  the  selling.  The  Government  is  not  in  the  com- 
mercial  insurance  business,  and  no  insurance  business  can  be  really  successfully 
conducted  without  active  solicitation.  The  Government  is  in  no  position  to  do 
this,  and  therein  lies  the  weakness  of  all  Government  insurance. 

Issue  of  Policies. 

No  policies  have  yet  been  issued  although  policies  were  approved  over  one 
year  ago,  and  this  has  led  to  considerable  friction.  The  Bureau  announces 
that  some  revised  edition  of  the  policies  will  be  issued.  This  should  be  done 
promptly  as  men  naturally  desire  to  have  substantial  evidence  of  their  insur- 
ance. 

Branch  Offices. 

Provision  has  been  made  in  the  Wason  Bill  for  Branch  Offices  and  collec- 
tion of  premiums  through  Post  Offices.  If  this  is  passed  it  will  go  a  long  way 
towards  solving  some  of  the  difficulties.  It  is  to  be  noted,  however,  that  in- 
dustrial life  insurance  companies  find  it  is  not  sufficient  to  establish  offices  in 
various  cities  throughout  the  country,  but  collectors  must  go  from  door  to  door 
to  collect  the  premiums.  Indifference  on  the  part  of  insured  will  always  mean 
an  enormous  lapse  of  business.  Inasmuch  as  a  considerable  proportion  of  the 
soldiers  and  sailors  belong  to  the  industrial  class,  it  may  be  assumed  that  with 
few  exceptions  men  in  that  class  will  not  voluntarily  make  the  monthly  pay- 
ments necessary  to  continue  their  insurance  in  force.  It  is  possible  that  the 
Bureau  through  large  employers  of  labor  might  be  able  to  arrange  for  the  col- 
lection of  premiums  by  means  of  a  deduction  from  the  amount  of  the  weekly 
pay  envelopes.  For  men  in  clerical  positions  it  is  possible  that  the  insurance 
may  be  kept  up  if  the  proper  machinery  is  installed. 

199 


The  Future 

At  best  it  must  be  recognized  that  a  small  proportion  of  the  insurance  is- 
sued will  continue  in  force  and  a  considerably  smaller  proportion  will  be  con- 
verted into  permanent  forms.  It  is  well  recognized  by  all  life  insurance  com- 
panies that  business  written  under  high  pressure  will  have  a  very  high  lapse 
rate.  It  is  safe  to  assume  that  no  life  insurance  was  ever  written  under  any- 
thing like  the  high  pressure  method  employed  in  placing  on  the  books  of  the 
Bureau  of  War  Risk  Insurance  the  enormous  amount  of  business  written  during 
the  war.  It  would  be  an  astonishing  thing  if  the  larger  part  of  such  business 
did  not  lapse  upon  the  discharge  of  the  men  from  the  fighting  forces.  While 
it  is  not  feasible  to  have  paid  agents  secure  the  conversion  of  term  policies  into 
the  permanent  forms  and  to  reinstate  the  insurance  which  has  lapsed,  a  certain 
amount  of  advertising  might  be  done  through  the  American  Legion. 

Personnel  of  Bureau. 

The  personnel  of  the  Bureau  in  Washington  for  all  its  operations  reached 
the  high  total  of  about  17,400  in  March,  1919.  It  has  since  been  reduced  to 
about  8,800  in  May,  1920.  It  is  expected  that  this  number  will  be  reduced 
still  further  to  about  7,500  in  June,  1920.  * 

SUGGESTIONS  FOR  CONSIDERATION 

(1)  All  work  affecting  the  ex-service  men  should  be  coordinated  and  re- 
sponsibility placed  with  corresponding  authority  under  one  active  directing 
head.  This  means  that  the  work  of  the  Vocational  Training  Board  should  be 
combined  with  that  of  the  War  Risk  Insurance  Bureau,  and  the  work  of  the 
United  States  Public  Health  Service  coordinated  with  that  of  the  War  Risk 
Insurance  Bureau. 

(2)  Under  converted  policies  men  should  be  permitted  to  name  any  bene- 
ficiary and  to  use  their  insurance  as  collateral;  and  a  reserve  should  be  set  up 
in  the  earnings  of  which  the  converted  policies  will  participate. 

(3)  Policies  must  be  issued  promptly. 

,  (4)     The  establishment  of  branch  offices  and  the  collection  of  premiums 
through  the  local  post  offices. 

(5)  The  personnel  of  the  Bureau  numbers  now  about  8,800.  Efl[icient 
management  can  make  a  marked  decrease  in  this  staff,  resulting  in  a  ma- 
terial saving. 


200 


r 


International  Trade  and  Credits 


Report  of  Sub-Committee 


FRANK  A.  VANDERLIP 

Chairman 

JOHN  H.  WILLIAMS 
Staff  Assistant 


INTERNATIONAL  TRADE  AND  CREDITS 

Analysis  of  tendencies  in  our  foreign  trade  from  1900  to  date  shows  we 
are  steadily  passing  from  an  agricultural  to  an  industrial  predominance  in  our  ex- 
port trade — imports  becoming  more  agricultural  in  character.  Geographically, 
Europe,  though  far  in  the  lead,  has  been  declining  in  importance  and  South  Amer- 
ica and  Asia  have  been  increasing  in  importance  as  markets  for  us.  Analysis  of 
our  balance  of  international  trade  and  credit  shows  we  are  now  a  creditor 
nation.  In  consequence  we  shall  ultimately  have  an  excess  of  imports  over 
exports.  Plan  to  extend  government  credits  to  the  Allies  will  postpone  this 
overturn  in  our  trade  balance  at  least  until  1923.  Other  changes  in  our  "in- 
visible" terms  of  trade  will  probably  postpone  this  overturn  for  some  years 
longer.  The  most  important  factor  capable  of  producing  this  result  is  an  ex- 
port of  capital  in  the  form  of  private  investment — likely  to  occur  on  a  moderate 
scale.  Our  large  surpluses  of  exports  during  the  war  and  in  1919  have  been 
chiefly  financed  by  extension  of  government  credits  to  Europe.  These  govern- 
ment advances  have  now  ceased.  They  must,  for  a  time,  be  followed  by  credits 
privately  extended.  Necessary  in  our  own  interest.  Necessity  will  gradually 
disappear.  Already  has  done  so  in  the  case  of  Great  Britain.  Steady  increase 
of  our  imports  since  1918.  Especially  significant  indication  that  the  need  for 
financing  exports  is  disappearing.  This  increase  shows  that  the  new  swing  in 
our  international  trade  has  already  begun.  Our  foreign  trade  in  the  future 
will  be  larger  and  more  important  than  before  the  war.  Our  present  govern- 
ment service  for  promoting  foreign  trade  unsatisfactory.  Various  agencies 
should  be  coordinated  and  concentrated  under  the  Commerce  Department  and 
larger  salaries  should  be  paid. 

CHANGES  IN  CHARACTER  OF  TRADE: 

Pre- War  Period,  1899-1914. 

The  commodities  which  make  up  foreign  trade  form  three  large  groups — 
foodstuffs,  raw  materials  and  manufactures.  The  broad  tendencies  in  our  pre- 
war trade  were : 

1.  The  decline  of  exports  of  foodstuffs  and  the  growth  of  imports. 

2.  The  marked  increase  of  exports  of  manufactures. 

3.  The  increasing  importance  of  raw  materials  in  both  exports  and  im- 
ports. 

Foodstuffs,  crude  and  manufactured,  declined  from  40  per  cent  of  total 
exports. in  1900  to  21  per  cent  in  1913.  Manufactures  increased  from  35  per 
,cent  of  total  exports  in  1900  to  49  per  cent  in  1913.  Raw  materials  increased 
from  23  per  cent  in  1900  to  30  per  cent  in  1913.  The  changes  in  imports  were 
less  marked,  the  relative  proportions  of  the  three  groups  being  more  evenly 
maintained.  Manufacturers  increased  from  40  per  cent  in  1900  to  42  per  cent 
in  1913,  and  raw  materials  from  33  per  cent  to  35  per  cent.  Food  imports 
decreased  in  relative  importance,  from  27  per  cent  in  1900  to  22  per  cent  in 
1913. 

As  to  food,  however,  the  significant  consideration  is  that  whereas  food 
exports  were  decreasing  in  absolute  value  as  well  as  in  relative  importance, 

203 


•food  imports  experienced  a  very  large  increase  in  absolute  value,  from  $231,- 
000,000  in  1900  to  $406,000,000  in  1913.  In  consequence,  imports  of  crude 
foodstuffs  surpassed  exports  in  each  year  from  1909  to  1914,  and  total 
food  imports  surpassed  total  food  exports  in  1912  and  1914.  In  other 
words,  from  a  period  of  large  annual  surpluses  of  food  exports,  the  United 
States  had  passed  to  a  period  in  which  it  was  barely  self-feeding.  Like- 
wise, taking  agricultural  exports  as  a  whole,  there  was  a  steady  decline  in 
importance.  In  1877-81  agricultural  exports  were  80  per  cent  of  the  total 
exports;  in  1907-11  they  were  54  per  cent,  and  tending  downward,  fhe  excess 
of  agricultural  exports  over  imports  averaged  $462,000,000  a  year  from  1877 
to  1911,  $353,000,000  from  1907  to  1911,  and  was  only  $207,000,000  in  1914 
Meantime  manufactures  were  becoming  of  increasing  importai^ce  in  the 
exports ;  their  progress  being  marked  by  an  extraordinary  expansion  to  a  new 
high. level  in  the  late  nineties,  and  by  another  very  marked  increase  after  1910, 
These  summary  facts  indicate  a  fundamental  change  in  our  foreign  trade, 
W^e  are  becoming  less  and  less  an  agricultural  exporting  nation  and  more  and 
more  an  industrial  exporting  nation. 

War-time  Changes. 

The  war  brought  an  enormous  expansion  of  exports,  but  the  increase 
was  confined  to  two  groups — foodstuffs  and  manufactures.  Exports  of  r^w 
materials  actually  declined,  from  $2,96D,000,000  in  the  four  years  preceding 
the  war  to  $2,675,000,000  for  the  period  July  1,  1914,  to  July  1,  1918.  The 
leason  for  the  decline  was  the  partial  or  total  closing  of  European  markets. 
Cotton  alone  comprises  about  two-thirds  of  this  group;  and  cotton  exports  fell 
from  36,000,000  bales  in  1911-14  to  25,000,000  bales  in  1915-18,  though  the 
great  rise  in  prices  prevented  a  corresponding  decline  in  value. 

Exports  of  food  and  manufactures  increased  enormously.  Foodstuffs  in- 
creased from  $1,757,000,000,  the  total  for  the  four  years  preceding  the  war, 
to  $4,780,000,000  for  the  four  years  July  1,  1914,  to  July  1,  1918.  The  in- 
crease occurred  mainly  in  four  commodities — wheat,  flour,  meats  and  dairy 
products.  Comparing  the  four-year  period  preceding  the  war  with  the  four 
years  ending  with  July  1,  1918,  exports  of  wheat  and  wheat  flour  increased 
from  $432,000,000  to  $1,456,000,000,  or  237  per  cent;  and  meat  and  dairy 
products  increased  from  $605,000,000  to  $1,609,000,000,  or  166  per  cent. 

But  it  was  in  manufactures  that  the  most  extraordinary  expansion  oc- 
curred. From  $4,210,000,000  in  the  four  pre-war  years,  manufactures  ex- 
ported increased  to  the  enormous  total  of  $11,380,000,000.  The  chief  gains 
were  in  military  exports.  Explosives  increased  from  $21,000,000  to  $1,716,000,- 
000,  manufactures  of  iron  and  steel  from  $1,055,000,000  to  $3,140,000,000, 
chemicals  from  $105,000,000  to  $662,000,000.  Only  less  striking  were  the  in- 
creases in  cotton  manufactures  (from  $154,000,000  to  $485,000,000),  in  woolen 
manufactures  (from  $15,000,000  to  $122,000,000),  in  automobiles  (from  $97,- 
000,000  to  $420,000,000),  and  in  leather  goods  (from  $158,000,000  to  $350,- 
000,000).  In  1914,  manufactures  constituted  47  per  cent  of  our  total  exports. 
During  the  war  period  they  were  58  per  cent. 

Further  Changes  in  1919. 

In  the  calendar  year  1919,  the  fivst  full  year  after  the  Armistice,  there 
were  some  further  significant  changes  in  merchandise  trade.  The  enormous 
value  figures  of  the  war  period  continued,  exports  ainounting  to  $7,922,000,- 

204 


000  and  imports  to  $3,904,000,000,  both  reaching  new  high  marks.  As  in  the 
war  period,  the  increase  was  mainly  in  the  value  figures,  consequent  upon  the 
inflation  of  prices.  But  as  compared  with  1918,  there  was  an  important  in- 
crease also  in  quantity  of  trade,  both  in  exports  and  in  imports.  The  prin- 
cipal increase  in  exports  was  in  raw  materials;  these  gained  $657,000,000 
or  68  per  cent,  as  compared  with  1918.  This  increase  is  traceable  chiefly  to 
the  expansion  of  exports  of  raw  cotton,  which  increased  from  $674,000,000 
in  1918  to  $1,137,000,000  in  1919  (or  $463,000,000),  and  to  the  increase  in 
exports  of  tobacco  leaf,  from  $153,000,000  in  1918  to  $306,000,000  in  1919 
(or  $153,000,000).  Food  exports  increased  $668,000,000  over  the  1918  fig- 
ures', or  35  per  cent,  the  chief  gains  being  in  wheat  and  wheat^flour,  which  in- 
creased from  $508,000,000  in  1918  to  $650,000,000  in  1919  (or  $142,000,000). 
and  in  hog  products,  from  $633,000,000  to  $860,000,000  (or  $227,000,000). 
Corn  and  corn  meal  and  beef  products  declined  considerably  from  the  high 
levels  reached  in  the  war  period.  Exports  of  manufactures  showed  a  small 
increase  ($364,000,000).  But  they  declined  in  relative  importance,  from  58 
per  cent  of  total  exports  in  the  war  period  to  45  per  cent  in  1919.  This  de- 
crease was  due  simply  to  the  virtual  cessation  of  military  exports.  In  im- 
ports, the  important  gains  were  in  raw  materials  and  m  foodstuffs.  The 
former  increased  $454,000,000  or  37  per  cent  over  1918,  and  the  latter  $358,- 
000,000  or  48  per  cent.  Imports  of  manufactures  remained  virtually  station- 
ary. Of  the  total  increase  of  imports  ($873,000,000),  93  per  cent  ($815,000,- 
000)  consisted  of  the  gains  in  six  commodities:  hides  and  skins,  coffee,  cane 
sugar,  raw  silk,  crude  rubber  and  precious  stones. 

Conclusion  as  to  Broad  Changes  in  Character  of  Trade. 

It  is  important  to  note,  regarding  these  changes  since  1914,  that  they  rep- 
resent chiefly  an  increase  in  the  value  figures  of  trade,  and  only  to  a  less 
extent  an  increase  in  quantity.  Exports  of  cotton,  for  example,  though  greatly 
increased  in  quantity  as  well  as  in  value  in  1919,  did  not  reach  the  pre-war 
quantity  level.  Food  exports  did  not,  in  general,  exceed  the  quantity  figures 
of  twenty  years  ago.  The-  only  important  exception  was  in  meat  products, 
which  in  1919  surpassed  the  quantity  figure  of  1899  (2,302,000,000  lbs.),  reach- 
ing a  new  high  mark  of  over  3,000,000,000  lbs.  Exports  of  wheat  and  wheat 
flour  exceeded  the  quantity  figures  of  1899  in  only  one  year,  1915.  These  quan- 
tity figures  make  it  apparent  that  the  war  represented  but  a  temporary  in- 
terruption of  the  previously  existing  tendencies,  namely,  a  declining  importance 
of  food  exports  accompanied  by  increasing  importance  of  exports  of  ma^^ufac- 
tures  (and,  to  a  less  extent,  of  raw  materials,  accompanied  by  an  increase  in 
imports  of  raw  materials) .  This  change  from  an  agricultural  to  an  industrial 
predominance  in  our  export  trade,  and  the  increasing  agricultural  character 
of  our  import  trade  may  be  expected  to  continue. 

GEOGRAPHICAL  CHANGES  IN  TRADE: 

Exports. 

Together  with  the  changes  in  the  character  of  the  trade,  there  were  cer- 
tain marked  changes  taking  place  during  the  pre-war  period  in  the  distri- 
bution of  trade.  Europe  has  always  been  our  most  important  market,  botli 
for  exports  and  imports  (except  for  imports  during  the  war) .  While  the  value 
of  exports  to  Europe  increased  in  the  pre-war  period,  the  increase  was  slighl 

205 


from  year  to  year;  and  in  relation  to  the  rest  of  the  world  our  exports  to 
Europe  were  decidedly  declining.  This  decline  became  marked  after  1901, 
Europe  taking  76  per  cent  of  our  exports  in  that  year  and  60  per  cent  of 
our  exports  in  1913.  The  proportion  of  exports  taken  by  North  America 
(Canada,  Mexico,  West  Indies  and  Central  America)  increased  after  1901.    In 

1899  it  was  13  per  cent;  by  1913  it  had  grown  to  25  per  cent,  an  importance 
that  North  American  trade  had  not  possessed  since  the  Civil  War. 

The  proportion  of  exports  to  South  America,  though  small  compared  with 
Europe,  increased  steadily,  though  slowly,  from  1900  to  1914.  Asia  as  a  market 
for  American  goods  remained  almost  stationary,  and  after  1909  was  sur- 
passed by  South  America. 

The  war  sent  European  exports  up  to  71  per  cent  of  the  total  in  1915,  a 
place  not  held  since  1904.  The  proportion  rapidly  fell  off,  however,  with  the 
progress  of  the  war,  and  in  1918  was  only  slightly  larger  than  in  1914.  Ex- 
ports to  North  American  countries  fell  off  in  the  first  year  of  the  war,  but 
rapidly  increased  after  1916.  By  1918  North  America  had  regained  its  place 
as  a  market  for  United  States  exports,  taking  in  that  year  20  per  cent  of  our 
total  exports.  The  slight  relative  decline  of  exports  to  South  America  during 
the  early  years  of  the  war  was  regained  by  1918,  and  in  1919  not  only  was  the 
value  of  our  exports  larger  than  ever  before,  but  the  percentage  of  our  exports 
to  South  America  reached  6  per  cent,  a  proportion  never  before  attained.  Ex- 
ports to  Asia,  however,  showed  the  most  consistent  gains  of  any  of  the  conti- 
nents during  the  war.  Beginning  with  1915,  they  were  larger  than  those  to 
South  America,  a  position  which  had  been  held  by  Asia  prior  to  1909.  The  fact 
that  Asia  and  South  America  have  maintained  or  surpassed  their  relative 
positions  in  respect  to  American  export  trade,  while  the  war-time  exports  to 
Europe  were  so  large,  is  significant  of  the  probable  future  importance  of  these 
markets  to  America's  trade. 

Imports. 

In  imports,  Europe  also  held  the  leading  position  in  the  pre-war  period. 
In  the  fiscal  year  1913-14,  47  per  cent  of  our  imports  were  from  Europe,  a 
lower  proportion  than  in  any  year  since  the  depression  of  1893-4.  But  in  gen- 
eral, the  decline  in  irhportance  of  Europe  was  less  marked  in  our  imports 
than  in  our  exports.  North  America  was  of  growing  importance  throughout 
the  war  period  as  a  source  of  imports,  supplying  15  per  cent  of  the  total  in 

1900  and  23  per  cent  in  1914.  South  America  averaged  about  12  per  cent  of 
imports,  without  much  change  from  year  to  year;  and  was  of  less  relative 
importance  in  the  fifteen  years  1899-1914  than  in  the  preceding  decade.  Im- 
ports from  Asia  averaged  about  15  per  cent  of  the  total,  and  showed  but  little 
change  during  the  period. 

The  effects  of  the  war  on  the  distribution  of  the  import  trade  were  much 
more  marked  than  upon  the  export  trade.  Imports  from  Europe  fell  to  less- 
than  14  per  cent  of  the  whole,  recovering  in  1919  to  19  per  cent.  The  result 
was  a  rise  in  the  proportion  of  imports  from  other  continents.  The  most 
marked  increase  was  from  Asia.  In  1918  Asia  supplied  28  per  cent  of  our 
Imports,  as  against  31  per  cent  from  North  America  and  19  per  cent  from 
South  America.  Taken  in  connection  with  the  increase  of  imports  into  the 
United  States  of  foodstuffs  and  raw  materials,  which  was  clearly  the  tendency 
before  the  war,  the  increase  in  imports  from  Asia  and  South  America  is  sig- 
nificant not  only  of  the  present  importance  of  those  regions  as  a  source  of 

206 


supply,  but  also  of  their  probably  increased  importance  as  compared  with  the 
period  before  1914.  The  increased  productive  power  and  the  increased  pros- 
perity which  the  war  period  has  brought  to  these  regions  may  well  be  expected 
to  result  in  their  permanently  greater  importance  in  trade,  both  import  and 
export,  whether  considered  in  absolute  quantity  or  in  relative  importance. 

BALANCE  OF  INTERNATIONAL  TRADE  AND  CREDITS 

Pre-War  Period;  an  Excess  of  Exports. 

More  important  than  the  trade  tendencies  just  reviewed,  because  having 
financial  and  political  as  well  as  commercial  significance,  and  involving  many 
difficult  questions  of  international  policy  about  which  decisions  must  be  taken, 
is  our  balance  of  international  trade  and  credit.  Our  trade  balance  shows  the 
broad  swings  in  our  foreign  trade.  In  the  last  twenty-five  years  it  shows 
two  distinct  movements  and  the  beginning  of  a  third. 

Up  to  1873  we  had  an  excess  of  imports,  representing  the  borrowing,  of 
capital  from  Europe  and — up  to  the  Civil  war — the  earnings  of  our  then 
large  merchant  marine.  In  the  forty  year  period  1874-1914  we  had  an  excess 
of  exports.  In  the  twenty-year  period  preceding  the  war  this  excess  of 
exports  was  large;  from  1896  to  1914  inclusive,  our  exports  of  merchandise 
and  silver  exceeded  our  imports  by  $9,262,000,000,  or  an  average  of  $487,000,000 
a  year.  That  favorable  trade  balance  was  wholly  consumed  and  more  by  our 
invisible  payments,  that  is,  items  that  did  not  appear  in  the  Government's 
statement  of  imports  and  exports.  Our  national  foreign  trade  balance  for 
that  period  might  be  stated  approximately  as  follows: 

INTERNATIONAL  BALANCE,  1896-1914 

Credit  Total  Annual  Average 

Favorable  trade  balance   (silver  included) $  9,262,000,000  $487,000,000 

Borrowings  of  capital  from  abroad 1,000,000,000  53,000,000 

Total  10,262,000,000  540,000,000 

Less  Gold  Imported  174,000,000  9,000,000 

Net  Total 10,088,000,000  531,000,000 

Debit 

Interest  items  owed  to  various  countries *3,040,000,000  160,000,000 

Remitted  from  United  States  by  immigrants 2,850,000,000  150,000,000 

Expended  by  American  Tourists 3,230,000,000  170,000,000 

Ocean  freight  paid  to  foreign  shippers 641,000,000  34,000,000 

Insurance  premiums,  commissions  and  miscellaneous  items..  570,000,000  30,000,000 

Total 10,331,000,000  542,000,000 

This  table  indicates  that  in  the  period  prior  to  the  war  we  were  increasing 
our  indebtedness  to  the  world  in  spite  of  the  great  foreign  trade  balance  which 
our  excess  of  exports  over  imports  created. 

War  Period. 

At  the  outbreak  of  the  war  it  was  estimated  that  we  were  in  debt  to 
the  world  between  four  billion  and  five  billion  dollars.  Then  came  a  funda- 
mental change  in  our  foreign  trade  situation.  In  the  period  from  July  1,1914, 
to  December  31,  1918,  our  favorable  trade  balance  expanded  as  follows : 

Total  exports  of  merchandise  and  silver $22,974,000,000 

Total  imports  of  merchandise  and  silver 11,166,000,000 

Favorable  trade  balance $11,808,000,000 

207 


This  favorable  trade  balance  was  settled  to  a  minor  degree  by  an  excess 
of  gold  imports  over  exports  amounting  to  $1,029,000,000,  and  by  shipping 
charges  and  remittances  of  immigrants  amounting  to  $1,026,000,000.  But 
chiefly  it  was  settled  by  the  export  of  capital  from  the  United  States.  Our 
international  balance  for  the  war  period  was  approximately  as  follows: 
War-Time  International  Balance. 

Credit  Debit 

Favorable  trade  balance  (silver  included) $11,808,000,000 

Interest  payments  receivable  from  foreign 

countries   650,000,000*  

American  securities  returned  from  Europe $2,000,000,000 

Public  and  private  loans  to  foreign  countries 8,840,000,000 

Gold  imports  (net) 1,029,000,000 

Shipping  charges  and  immigrant's  remittances        1,026,000,000 

Total $12,458,000,000     $12,895,000,000 

These  figures  show  that  our  favorable  trade  balance  was  settled  by  the 
re-sale  to  us  of  American  securities  owned  abroad,  to  the  sum  of  $2,000,000,000, 
by  the  sale  to  private  investors  in  the  United  States  of  foreign  government, 
municipal  and  corporate  obligations  amounting  to  a  net  figure  of  $1,520,000,000 
and  by  loans  made  by  the  United  States  government  to  foreign  governments 
amounting  to  $7,320,000,000. 
Calendar  Year,  1919. 

With  this  we  may  compare  our  international  situation  in  the  calendar 
year  1919.  The  great  expansion  of  foreign  trade  values  and  the  large  fa^Jor- 
able  trade  balances  which  characterized  the  war  period  continued.  In  fact,  in 
every  particular — total  trade,  exports,  imports  and  excess  of  exports  over  im- 
ports— our  trade  in  1919  exceeded  that  of  any  of  the  war  years,  and  repre- 
sented the  farthest  point  of  expansion  that  has  ever  been  attained  in  the  history 
of  our  foreign  Commerce.    The  trade  situation  was  as  follows: 

Total  exports  of  merchandise  and  silver $8,161,000,000 

Total  imports  of  merchandise  and  silver 3,993,000,000 

Favorable  balance  of  trade $4,168,000,000 

As  in  the  war  period,  this  huge  favorable  trade  balance  was  settled  chiefly 

by  the  export  of  capital.     Our  balance  of  international  payments  in  1919  was 

as  follows : 

INTERNATIONAL  BALANCE  IN  1919 

I  Credit  Debit 

Favorable  trade  balance  (silver  included) $4,168,000,000 

Net  export  of  gold  minus  gold  held  by  Bank  of  Eng- 
land for  Federal  Reserve  Bank) 160,000,000 

Interest  payments  receivable 122,000,000 

Ocean  freights  payable  to  United  States,  and  sale  of 
ships 93,000,000 

Total  financial  assistance  rendered  by  our  government  to 
foreign  governments   ; $3,149,000,000 

Private  foreign  investment  (exclusive  of  European  in- 
ternational bonds)    221,000,000 

Purchases  of  European  currencies  by  our  government  to 

defray  military  and  other  expenditures  abroad 526,000,000 

Remittances  of  immigrants  and  tourists 350,000,000 

Totals $4,543,000,000  $4,245,000,000 

*In  the  interest  payments  receivable,  the  largest  item  was  interest  on  government  advances  to 
the  Allies.  This  was  not  paid,  and  should  be  deducted  from  the  figure  given.  The  amount  unpaid 
to  December  31,  1918,  was  $324,000,000. 

208 


Important  Part  Played  by  Government  Credits. 

These  figures  show  that  of  the  total  debt  side  of  our  balance,  the  export 
of  capital  comprised  $3,369,000,000,  or  80  per  cent.  The  striking  feature  was 
the  predominant  part  played  by  government  operations.  Of  the  total  debits, 
$4,245,000,000,  no  less  than  $3,674,000,000  represents  purely  governmental 
items.  As  between  the  public  and  private  export  of  capital,  it  is  seen  from  the 
table  that  out  of  a  total  export  of  capital  amounting  to  $3,369,000,000,  $3,148,- 
000,000  represents  extensions  of  credit  in  one  form  or  another  by  our  govern- 
ment to  European  governments.  If  these  were  removed,  the  net  export  of 
capital  representing  private  investment  in  foreign  countries  would  amount  to 
the  small  figure  of  $221,000,000,  Furthermore,  when  this  sum  is  placed  over 
against  the  net  interest  payments  received  (all  of  which  were  on  purely  private 
capital  invested  abroad),  the  net  outflow  of  capital  on  private  account  is  re- 
duced to  only  $99,000,000. 

The  export  of  capital  in  the  form  of  financial  assistance  by  our  government 
to  foreign  governments  was  as  follows: 

Direct  advances  to  finance  exports i .  $2,039,416,000 

Army  and  other  government  supplies  sold  abroad  on  credit  (approx.) 685,000,000 

Relief  (approximately)   100,000,000 

Unpaid  accrued  interest  up  to  January  1, 1920,  on  Allied  government  obligations        324,212,000 

Total   . -. $3,148,628,000 

Relation  of  Our  Balance  to  Foreign  Exchange  Market. 

Concerning  these  items  of  financial  assistance  rendered  to  Europe  by  our 
government  in  1919,  it  should  be  noted  that  not  ail  of  them  represent  trans- 
fers of  capital  from  the  United  States  in  the  past  calendar  year.  Two  items, 
whose  total  was  $1,009,000,000 — the  sale  of  government  supplies  abroad  on 
credit,  and  unpaid  accrued  interest — represented  no  new  movement  of  capital 
or  goods  from  the  United  States  in  1919,  but  simply  a  deference  of  the  exer- 
cise of  our  right  to  payment.  Though  they  played  an  important  part  in  our 
financial  account  with  the  outside  world,  and  should  serve  to  increase  the  sum 
of  our  credits  upon  which  interest  will  be  receivable  from  abroad,  they  stood 
entirely  outside  of  the  exchange  market. 

The  significance  of  this  circumstance  is  that  by  omitting  these  items 
from  the  balance  to  gain  a  clearer  view  of  conditions  operative  upon  the  ex- 
change rates,  we  find  that  our  credit  items  in  1919  exceeded  our  debit  items — 
from  the  viewpoint  of  the  exchange  market — by  $1,307,000,000.  Jihis  balance 
represents  exchange  created  and  not  covered  by  the  debit  side  of  the  balance. 
It  includes  exchange  created  and  being  held  by  bankers  and  others,  who  either 
could  nut  or  were  unwilling  to  unload  at  the  rates  current,  and  the  country- 
wide speculative  purchases  which  are  known  to  have  been  made  of  the  depreci- 
ated European  currencies  and  internal  bonds. 

OUR  FUTURE  TRADE  AND  POLICY 

U.  S.  Now  a  Creditor  Nation. 

The  outstanding  feature  in  the  brief  survey  which  we  have  given  of  the 
state  of  our  international  trade  and  credit  is  of  course  the  abnormality  of  our 
situation.  Our  enormous  exports  of  the  past  five  years  have  been  caused  by 
abnormal  needs,  those  of  war  and  reconstruction ;  and  they  have  been  financed 
by  abnormal  means,  by  funds  provided  from  our  own  pockets.  The  result  has 
been  a  fundamental  reversal  of  our  international  position,  from  that  of  a  debtor 

209 


nation  to  that  of  a  creditor  nation.  This  change  has  occurred  on  a  scale  and 
with  a  rapidity  never  before  witnessed  in  the  world's  history.  Even  after  care- 
ful analysis  and  explanation  it  remains  astonishing.  At  the  outbreak  of  war 
we  owed  the  world  between  four  and  five  billion  dollars.  At  the  end  of  1919, 
it  is  estimated  that  we  had  exported  capital  to  the  amount  of  $13,000,000,000, 
and  that,  deducting  foreign  capital  invested  in  this  country,  we  are  a  creditoi* 
nation  on  capital  account  to  the  extent  of  about  $12,000,000.  ^ 

What  does  this  mean  for  the  future  of  our  foreign  trade  and  our  interna- 
tional economic  policy  ?  The  answer  is  pretty  generally  agreed  upon.  Just  as 
prior  to  the  war  when  a  debtor  nation  we  had  to  export  more  than  we  imported 
to  pay  interest  and  the  other  invisible  debit  items,  so  in  the  post-war  period  as 
a  creditor  nation  we  must  have  an  excess  of  imports  over  exports — to  pay  the 
creditor  nation  its  interest.  Of  the  ultimate  truth  of  this  answer  there  can  be 
no  question. 

But  this  answer  is  too  general  to  be  of  much  work-a-day  use,  especially  as 
a  basis  for  the  guidance  of  policy  in  the  immediate  future.  It  supposes  a  normal 
condition  of  trade,  looks  to  an  ultimate  solution,  takes  no  account  of  the  time 
necessary  to  bring  in  our  international  balance  which  might  be  expected  to  occur 
during  that  interval  and  to  affect  and  perhaps  postpone,  though  not  to  alter, 
this  ultimate  condition  of  our  balance  of  trade.  It  puts  aside,  too,  or  at  least 
looks  well  beyond,  the  many  special  and  unusual  circumstances  which  render 
so  difficult  a  just  appraisal  of  the  present  and  immediate  future  of  our  interna- 
tional situation. 

Other  Factors  Affecting  Future  of  Our  Trade  Balance. 

There  are,  however,  some  clear  considerations  which  will  have  a  bearing 
upon  the  future  of  our  foreign  trade,  and  some  straws  indicative  of  tendency 
now  discernible,  which  help  us  to  visualize  more  definitely  the  changes  which 
will  occur  in  our  trade  balance  and  in  the  light  of  which  decisions  as  to  inter- 
national policy  may  be  more  intelligently  framed.  These  considerations  will  be 
briefly  set  forth.  - 

Export  of  Private  Capital, 

In  the  first  place,  even  a  very  moderate  annual  outflow  of  private  capital 
into  foreign  investment  would  for  some  years  offset  the  annual  interest  pay- 
ments receivable  on  capital  already  invested  abroad,  and  would  thus  postpone 
the  ultimately  expected,  and  indeed  inevitable,  overturn  of  our  trade  balance. 
Whether  this  outflow  will  take  place  is  debatable,  but  in  view  of  the  recen'. 
notable  expansion  of  our  international  banking  and  foreign  trade  financing,  of 
the  noteworthy  growth — even  within  the  past  year — of  foreign  investment 
banking  houses  of  the  highest  character,  of  our  increasing  commercial  foot- 
hold and  the  growth  of  our  trade,  both  export  and  import,  with  Canada,  Latin 
America  and  the  Orient,  it  appears  probable  that  some  foreign  investment  is 
hereafter  to  be  expected  as  a  normal  ch  aracteristic  of  our  international  rela- 
tions. This  view  finds  support,  too,  in  the  analogy  with  the  experiences  of 
other  nations  as  they  have  entered  into  their  predominantly  industrial  period 
of  international  trade,  as  we  have  seen  that  the  United  States  is  now  doing. 
Sooner  or  later  the  stage  is  reached  where  capital  is  sufficiently  abundant  to 


^  See  article,  "The  Future  of  Our  Foreign  Trade,"  Review  of  Economic  Statistics,  Supplement, 
April,   1920.  .  ; 

-For  a  fuller  discussion  of  them  the  reader  is  referred  to  the  monograph  on  "The  Future  of 
Our  Foreign  Trade:  A  Study  of  Our  International  Balance  in  1919,"  in  the  April  Supplement  of  the 
Harvard  Review  of  Economic  Statistics. 

210 


induce  an  outflow  into  promising  outside  fields.  Though  the  analogy  loses  some 
force  in  our  case  by  reason  of  the  greater  size,  resources,  and  opportunities  of 
our  country,  the  general  principle  is  of  the  greatest  importance ;  and  it  finds 
ample  illustration  in  the  increasing  number  and  magnitude  of  our  industrial 
undertakings  in  Canada  and  in  many  parts  of  Latin  America.  This  outflow  of 
foreign  investment  will  not  be  large,  however,  since  all  the  evidence  pomts  to 
the  fact  that  we  are  still  (and  probably  should  be)  fundamentally  stay-at-home 
in  our  financial  international  policy.  The  great  burden  imposed  -by  the  present 
taxation  program,  moreover,  is  not  conducive  to  extensive  foreign  investment. 
It  may  be  noted,  moreover,  that  this  form  of  the  export  of  capital  does  not  fall 
properly  within  the  field  of  national  political  policy  making,  but  may  be  ex- 
pected to  care  for  itself.  The  only  significance  it  has  for  our  present  purpose  is 
that  if  it  should  continue  to  take  place,  even  on  so  moderate  a  scale  as  in  the 
past  year — which  seems  altogether  probable — it  would  postpone  for  some  years 
the  expected  overturn  of  our  trade  balance.     ^ 

Predominance  of  Capital  and  Interest  Account. 

Thus  far  one  conclusion  stands  boldly  out.  Whatever  changes  which  occur 
on  our  trade  balance  will  be  due  principally  to  the  capital  and  interest  account, 
which  has  become  easily  the  dominating  item  in  our  international  balance.  For 
the  present,  and  until  1923,  this  account  will  be  subject  to  a  special  circum- 
stance, which  renders  certain  the  prediction  that  down  to  1923  our  balance  of 
^  trade  will  continue  to  show  some  excess  of  exports  over  imports.  That  cir- 
cumstance is  the  funding  of  our  government  credit  advances  to  foreign  govern- 
ments, and  also  of  the  interest  charges  thereon  for  a  three-year  period.  In- 
cluding in  this  operation  the  army  and  other  supplies  sold  on  credit  to  foreign 
governments,  and  adding  the  interest  compounded  at  5  per  cent  for  three 
years,  the  principal  of  the  government  advances  will  be  in  1923  $12,350,000,- 

000.  and  the  interest,  payable  in  cash  or  its  equivalent,  will  be  $618,000,000. 

Effect  of  Recent  Decision  to  Fund  Government  Credits  to  Allies  for  Three  Years. 

The  effect  of  this  funding  operation  upon  our  international  balance  can  be 
seen  from  the  following  table,  which  shows  our  annual  balance  of  indebtedness 
on  invisible  items  in  the  pre-war  period,  at  the  present  time,  and  in  1923. 

Pre- War  Period  The  Present  1923 

Credit      Debit  Credit       Debit  Credit       Debit 

1.  Net  interest  payments  on  private 

capital    -. 160  122  122 

2.  Net   interest   payments   on    govt. 

advances    0                     0                                 618 

3.  Net  freight  payments 35                   73                                   73 

4.  Immigrants'  remittances -150                                  300                                300 

5.  Tourists'  expenditures    150                                    50                                150^ 

6.  Insurance  premiums  commissions, 

and  miscellaneous   30  30  30 

Totals   .-  525  195  380  813  480 

Balance    525  185  333 

Favorable  Trade  Balance  Will  Certainly  Continue  to  at  Least  1923. 

This  table  shows  that  at  the  present  time,  in  spite  of  our  marked  creditor 
position  on  capital  account,  the  only  interest  being  paid  to  us  is  that  on  private 
capital,  and  that  its  amount  is  so  small  ($122,000,000)  that  the  credits  on  in- 
visible items  in  our  present  balance  are  only  about  half  as  large  as  the  debits 

C)  Taken  at  the  pre-war  figur 

211 


total.  Any  increases  in  any  of  the  debit  items  shown,  or  any  purchases  by 
our  government  of  European  currencies  to  defray  our  military  or  other  expen- 
ditures in  Germany  or  elsewhere,  or  any  further  advances  of  credit  to  Europe, 
either  publicly  or  privately,  would  increase  the  debit  balance.  This  debit  bal- 
ance on  invisible  items  means  for  the  balance  of  merchandise  trade  an  excess  of 
exports  over  imports.  It  is  certain  therefore  that  until  1923  our  favorable 
trade  balance  will  continue,  but  that  it  will  be  reduced  in  amount.  That  it 
will  be  reduced  to  so  small  a  figure,  however,  as  that  which  is  here  shown — 
$185,000,000 — is  altogether  improbable,  in  view  of  the  other  factors  which  have 
been  mentioned  as  likely  to  be  found  as  additional  items  on  the  debit  side  of 
our  international  balance  during  this  period. 

But  when  in  1923,  according  to  the  present  funding  arrangement,  the  in- 
terest payments,  on  government  credits  again  make  their  appearance  in  the 
balance,  total  interest  payments  receivable  by  the  United  States  will  be  in- 
creased to  $740,000,000  and  the  total  of  the  credit  side  of  the  balance  to  $813,- 
000,000.  The  result  will  be  to  give  us  for  the  first  time  a  net  credit  balance  or. 
invisible  items,  which  on  the  basis  of  the  figures  given  in  the  table  would  be 
$333,000,000.  This  credit  balance  would  indicate  a  small  excess  of  imports  over 
exports. 

Other  Probable  Changes  in  Our  *'Invisible"  Balance  May  Postpone  Excess  of  Imports  Still 
Further. 

That  this  change  will  occur  in  the  year  1923,  however,  is  not  probable. 
"Other  factors,  already  mentioned,  are  likely  to  be  operative — military  or  other 
expenditures  in  Europe,  a  moderate  outflow  of  capital  representing  private  in- 
vestment in  foreign  enterprises,  a  possible  renewal  or  prolongation  of  the  whole 
or  some  part  of  the  credits  funded,  new  credit  in  any  form  to  finance  exports. 
The  continuance  of  some  of  these  operations  into  1923  may  be  improbable,  but 
that  all  of  them  will  be  absent  from  our  balance  by  that  date  is  even  more  im- 
probable; and  any  one  of  them  or  any  combination  of  them  would  be  sufficient 
to  postpone  still  further  the  overturn  of  our  trade  balance.  Moreover,  changes 
may  occur  in  other  invisible  items.  The  shipping  item,  now  listed  as  a  credit 
of  $73,000,000,  will  probably  not  show  much  increase  and  is  more  likely  to  de- 
crease, since  the  present  figure  is  computed  upon  the  basis  of  a  very  high 
level  of  freight  rates.  Computed  at  the  pre-war  level,  the  present  shipping 
credit  would  amount  to  only  about  $18,000,000.  Even  a  considerable  further 
expansion  of  our  merchant  marine  would  not  be  of  important  effect  on  our 
balance  if  accompanied,  as  seems  reasonable  to  anticipate,  by  a  considerable 
fall  of  freight  rates  in  future  years.  (This  point  is  of  course  a  minor  signifi- 
cance as  regards  our  general  policy  toward  a  merchant  marine.)  More  impor- 
tant will  probably  be  the  changes  in  the  items  which  still  remain  on  the  debit 
side  of  our  balance — the  remittances  of  tourists  and  immigrants.  The  latter  has 
expanded  to  a  new  high  level  in  the  past  year,  and  a  large  further  increase  ap- 
pears unlikely  in  the  near  future.  But  an  increase  of  tourists*  expenditures  is 
altogether  probable,  since  there  is  doubtless  an  accumulation  of  persons  wait- 
ing to  make  the  visit  to  Europe  after  so  long  a  period  of  interruption.  Espe- 
cially may  one  expect  a  movement  of  tourists  to  the  battlefields.  Reports  from 
Europe  indicate  that  such  a  movement  is  expected,  and  some  foreign  exchange 
bouses  on  this  side  are  taking  an  active  interest  in  the  probable  volume  of 
tourists'  remittances  to  France  in  the  next  five  years.  Should  an  increase  in 
this  item  occur,  it  would  reinforce  the  caution  which  we  have  given  against  as- 

212 


suming  that  the  payment  of  full  interest  on  our  capital  abroad  in  1923  will 
necessarily  result  at  that  time  in  an  overturn  in  our  trade  balance  and  an  ex- 
cess of  imports  over  exports. 

The  Gold  Situation  and  Conditions  in  Europe. 

The  remaining  evidence  afforded  by  the  present  study  is  that  afforded  by 
the  statistics  of. merchandise  and  specie  in  1919.  The  latter  show  the  anoma- 
lous situation  of  a  creditor  nation  with  the  largest  favorable  trade  balance  in 
its  history  exporting  more  gold  in  a  single  year  than  ever  before,  when  logically 
it  should  have  been  receiving  gold.  Exports  of  gold  in  1919  were  $368,185,000 
and  gold  imports  $76,534,000,  giving  an  excess  of  exports  amounting  to  $291,- 
651,000.  Counting  as  a  partial  offset  the  $131,300,000  of  gold  received  from 
the  Reichsbank  for  foodstuffs  sold  to  the  German  government  and  being  held  by 
the  Bank  of  England  for  our  Federal  Reserve  Banks,  the  net  loss  of  gold  was 
$160,351,000.  This  astonishing  loss  of  gold  which  has  continued  in  the  current 
year  is  due  to  the  fact  that  the  United  States,  having  lifted  its  gold  embargo, 
gold  is  going  out  in  settlement  of  balances  piled  up  against  us  by  neutral  coun- 
tries of  South  America  and  the  Orient  during  the  war ;  while  the  European  gov- 
ernments whose  deficits  to  us  would  lead  normally  to  a  flow  of  gold  from  them 
to  us  have  continued  their  gold  embargoes  in  operations.  The  only  exception 
is  Great  Britain,  which  in  the  past  month  has  partially  lifted  her  embargo  and 
allowed  gold  exports  to  us  amounting  (up  to  April  8)  to  $41,700,000.  This  is  the 
most  important  indication  to  date  that  the  British  situation  is  reverting  to  nor- 
mal, and  serves  to  bear  out  the  evidence  being  afforded  by  the  steady  increase 
which  has  been  taking  place  in  British  exports,  particularly  in  recent  months. 
In  France  and  Italy,  though  their  exports  have  increased  to  some  extent  — 
mainly  through  continued  price  inflation — the  situation  is  less  certain ;  and  in 
Germany  and  Russia  the  future  is  quite  beyond  prediction  at  the  present  time. 

Our  International  Credit  Policy. 

In  general,  then,  the  continuance  of  the  European  gold  embargoes  means 
that  the  European  situation  is  still  most  abnormal,  the  currency  being  incon- 
vertible paper  issued  in  enormous  quantities,  and  the  means  of  payment  for 
necessary  imports  from  us  being  neither  goods  nor  gold,  but  advances  from  our 
own  funds.  This  situation  raises  what  is  perhaps  our  most  important  question 
with  regard  to  our  international  economic  policy:  the  question  of  further 
credit  advances  to  Europe.  The  direct  advances  by  the  government  have  defi- 
nitely ceased.  In  announcing  this  decision  on  January  28,  Secretary  Glass  de- 
clared that  the  time  had  come  for  governments  "to  get  out  of  banking  and 
trade" ;  and  that  "governmental  control  only  postpones  sound  solutions  of  the 
problems"  (especially  in  the  case  of  the  borrowing  countries,  where  govern- 
ment control  may  well  be  in  danger  of  postponing  an  adequate  realization  of 
individual  responsibilities  and  burdens). 

New  Credits  Should  Be  Extended  Privately,  Not  by  Governments. 

With  this  decision,  subsequently  endorsed  by  Secretary  Houston,  we  are 
in  hearty  accord.  Such  credits  as  are  granted  should  be  chiefly  of  private  char- 
acter. That  credits  are  now  being  granted  in  this  way — ^that,  in  other  words, 
exporters  and  bankers  are  finding  devices  for  carrying  their  foreign  customers 
— is  of  course  generally  known.  That  the  practice  should,  and  indeed  must,  go 
on  for  a  time,  though  in  diminishing  volume,  is  also  generally  agreed  among 

213 


competent  observers.  To  rest  the  case  solely  upon  considerations  of  self-inter- 
est, it  should  go  on  in  the  interest  of  our  exporters  who  are  committed  to  a 
large-scale  program  from  which  they  could  not  hastily  withdraw  without 
injury;  in  the  interest,  too,  of  our  financial  security  in  Europe;  and  also  of 
such  assurance  as  can  be  thus  consciously  achieved  against  any  sudden  upset 
of  our  none  too  firmly  balanced  financial  equilibrium  at  home.  From  every 
point  of  view  a  gradual  diminution  of  our  huge  export  trade  (amounting 
to  $8,161,000,000  in  1919),  a  gradual  change  to  the  new  position  of  an  excess 
of  imports  which  appears  ultimately  inevitable,  is  desirable;  and  that  gradual 
diminution  would  appear  to  render  necessary  a  gradual,  rather  than  an  abrupt, 
relinquishment  of  our  policy  of  export  financing. 

Whether  new  machinery  for  accomplishing  this  purpose  is  necessary  ap- 
pears unlikely.  For  the  most  part  it  may  be  left  in  private  hands — those  of 
bankers  and  exporters.  Such  governmental  assistance  of  private  exporters  as 
seems  desirable  can  be  managed  through  the  machinery  now  afforded  by  the 
War  Finance  Corporation,  with  such  modifications  of  the  present  arrangement 
as  would  be  necessary  to  make  it  better  capable  of  serving  their  needs  and 
interests. 

Striking  Upward  Trend  of  Imports  Since  1918 

Another  factor  which  would  tend  to  lessen  the  likelihood  of  an  abrupt 
decline  of  our  exports,  and  at  the  same  time  to  solve  gradually  the  problem 
of  our  export  financing,  is  the  already  strikingly  noticeable  upward  trend  of 
our  imports.  For  the  whole  year,  as  has  been  said,  we  had  the  largest  favor- 
able balance  in  our  history.  Exports  reached  value  figures  never  before  equaled 
in  any  country,  $8,161,000,000.  But  the  half  yearly  and  the  quarterly  figures 
tell  a  very  different  story.  They  show  that  this  largest  surplus  of  exports 
was  due  entirely  to  the  conditions  which  obtained  in  the  first  half  of  the  year. 
The  expansion  of  exports  which  began  in  the  first  year  of  the  war  reached  its 
culmination  in  June,  1919,  with  the  enormous  total  in  that  single  month  of 
$928,000,000.  The  exports  of  the  second  half  of  the  year  showed  an  unmis- 
takable decline,  which,  however,  was  not  pronounced,  amounting  to  only 
$239,000,000  in  six  months  of  trade.  But  even  this  is  significant  in  the  harvest 
export  season,  when  exports  should  normally  exceed  those  of  the  first  half  of 
the  year. 

New  Swing  in  Our  International  Trade  Has  Begun. 

The  striking  change,  however,  was  in  imports.  These  declined  in  1918, 
after  the  spring  quarter.  In  1919  there  set  in  a  rapid  and  steady  expansion 
of  imports— from  $246,000,000^  in  the  first  quarter  to  $306,000,000^  in  the 
second,  to  $367,000,000^  in  the  third,  and  $411,000,000^  in  the  last  three  months 
of  the  year.  In  consequence,  the  trade  balance  of  the  second  half  of  1919 
showed  a  marked  decline— from  $2,547,000,000  in  first  half  of  year  to  $1,620,- 
000,000  in  the  second  half  year,  a  decHne  of  $927,000,000,  or  about  36  per  cent. 

This  consistent  and  pronounced  increase  of  the  merchandise  imports  was 
the  outstanding  fact  of  the  year  1919.  It  indicates  that  the  new  "swing"  has 
begun  in  our  international  trade.  It  shows  beyond  any  question  that  our  huge 
excess  of  exports,  conceded  on  all  hands  to  be  abnormal  and  incapable  of  con- 
tinuance beyond  a  brief  period,  is  already  in  the  process  of  disappearance.  It 
appears  certain,  however,  in  view  of  the  large  increase  of  imports  in  the  past 


Monthly  Averages. 

214 


year,  that  the  disappearance  of  our  favorable  balance  will  come  about  as  much 
by  a  process  of  imports  growing  up  to  exports,  as  by -actual  diminution  of 
exports.  Diminution  of  one  sort  there  will  be  in  both  terms  of  the  trade 
balance.  The  value  figures  will  diminish  with  the  deflation  of  prices;  but  in 
the  general  deflation  process,  at  home  and  abroad,  this  diminution  of  value  so 
far  as  due  merely  to  falling  prices,  would  be  without  special  economic  signifi- 
cance. 

Summary  of  Future  of  Our  Foreign  Trade. 

Whether  our  excess  of  exports  will  disappear  altogether  and  when,  and 
whether  it  will  be  succeeded  by  an  excess  of  imports  or  by  a  mere  balancing 
of  exports  and  imports  are  questions  answerable  by  reference  to  the  changes 
in  the  invisible  items.  We  may  summarize  such  definite  assertions  as  we  have 
ventured  to  make.  The  ultimate  consequence  of  our  shift  from  the  debtor  to 
the  creditor  position  must  be,  ultimately,  an  excess  of  imports  over  exports. 
When  this  will  occur,  whether  in  five  years  or  not  for  a  decade,  will  depend 
on  certain  changes  in  the  invisible  items  of  our  balance  (and  perhaps  upon 
decisions  of  international  policy) ,  about  which  prediction  can  not  be  made  with 
confidence.  The  dominant  item  in  our  balance  will  certainly  be  the  capital 
and  interest  account.  A  moderate  annual  export  of  capital  in  the  form  of 
foreign  investment  might  postpone  the  overturn  of  the  trade  balance  to  a 
period  several  years  hence,  say  until  the  late  twenties.  As  matter  of  opinion, 
we  think  this  likely.  A  wiping  off  of  a  part  of  the  government  credits  would 
have  a  similar  eflfect;  if  that  part  were  very  considerable  the  effect  might  in- 
deed be  long  felt,  and  give  us  a  "favorable"  trade  balance  for  an  extended 
period.  But  there  is  no  reason  to  anticipate  such  an  occurrence.  It  can  be 
stated,  however,  that  by  reason  of  the  funding  of  the  principal  of  the  gov- 
ernment credit  advances  and  of  the  interest  thereon  for  a  three-year  period 
an  excess  of  exports  over  imports  is  possible  and  yery  likely  probable,  though 
of  reduced  amount  as  compared  with  the  last  five  years,  at  least  until  the 
year  1923. 

Recommendations   on   Government   Service   in  Promoting  Foreign  Trade.  ^ 

There  is  need  of  a  final  word  concerning  the  future  of  our  government 
service  in  promoting  foreign  trade.  There  is  plenty  of  evidence  that  our 
foreign  trade  will  never  return  to  its  pre-war  level.  Its  rapid  growth  in  the 
last  twenty  years  before  the  war,  the  rapidly  increasing  exports  of  manufac- 
tures ^nd  imports  of  food  and  raw  materials  in  that  period,  the  opening  up  and 
extension  of  new  markets  during  the  war  period,  the  development  of  our  inter- 
national banking  and  foreign  trade  fir  ncing — all  make  it  clear  beyond  per^d- 
venture  that  our  foreign  trade  has  taken  a  new  and  more  important  place  in 
our  national  economic  life  than  ever  before.  There  is  therefore  need  of  the 
most  effective  cooperation  at  home  and  abroad  by  our  federal  government.  At 
present  trade  statistics  are  collected  incidentally  to  the  collection  of  customs, 
under  the  Treasury.  The  invoices  in  which  import  values  are  stated  are  in 
charge  of  the  consular  service,  under  the  State  Department.  The  trade  data 
are  actually  compiled,  however,  and  trade  information  distribvited  to  the  busi- 
ness community  by  the  Commerce  Department.  This  overlapping  and  lack 
of  co-ordination  among  the  government  departments  charged  with  the  foreign 
trade  service  is  not  only  uneconomical  from  a  fiscal  standpoint,  but  confusing 
and  conducive  th  inefficiency  and  inter-departmental  controversy.    It  has  been 

215 


responsible,  among  other  things,  for  the  deplorable  inconsistencies  which  oc- 
curred in  the  past  year  in  import  valuation  at  the  custom  houses.  It  is  re- 
sponsible for  the  present  competition  of  the  departments  of  State  and  Com- 
merce for  rival  foreign  trade  service  appropriations. 

Our  governmental  foreign  trade  service  should  be  centered,  so  far  as  is 
possible  and  without  too  abrupt  change,  in  the  Commerce  Department,  which, 
it  has  been  my  experience  both  at  home  and  in  foreign  trade  investigation 
abroad,  is  easily  the  most  competent  in  personnel  and  in  organization  for  the 
purpose  sought.  Also,  it  is  scarcely  necessary  to  add  that  more  efficient  gov- 
ernment foreign  trade  service,  comparable  with  that  of  England,  or  of  Germany 
before  the  war,  can  be  had  only  by  offering  salaries  sufficient  to  attract  high 
grade  men,  well  trained  in  principles  and  experienced  in  practice. 


It  must  be  remembered  that  it  has  been  impossible  for  this  Committee 
to  investigate  the  actual  productive  capacity  of  Continental  Europe.  Accord- 
ing, however,  to  information  received  from  one  of  the  members  of  the  Com- 
mittee who  has  just  returned  from  Europe,  it  would  appear  that,  owing  to 
disorganized  social  and  political  conditions,  the  lack  of  raw  material  and  the 
depreciation  of  currency  and  exchange  values,  production  for  export  through- 
out the  greater  part  of  Continental  Europe,  is  arrested.  '  This  is,  of  course, 
particularly  true  of  all  of  Central  Europe,  and,  to  a  lesser  extent,  of  France, 
Italy  and  the  Scandinavian  countries.  Our  report  is  necessarily  based  on  avail- 
able figures  and  statistics.  It  is  obvious,  however,  that  if  the  report  just  out- 
lined is  correct,  insofar  as  Europe  is  concerned  the  export  possibilities  may 
be  very  seriously  limited,  and,  in  fact,  impossible  in  any  considerable  amount, 
except  on  a  credit  basis. 


216 


The  Regulation  of  Commerce 
and  Industry 

Report  of  Sub-Committee 


GEORGE  WHARTON  PEPPER 

Chairman 

E.     M.    PATTERSON 
Staff   Assistant 


THE  REGULATION  OF  COMMERCE  AND  INDUSTRY 

The  facts — Large  scale  production — Three  forces  developing  large  scale 
enterprises — Elimination  of  waste — Increased  receipts — Reduction  of  overhead 
costs — Public  distrust  of  monopolistic  enterprises — Restrictive  legislation — 
Recent  corporate  practices  and  tendencies — Problems  raised  by  some  proposed 
remedies — Continuing  war-time  regulation — Difficulties  of  enforcing  competition 
— Advantages  and  disadvantages  of  governmental  regulation — Public  sentiment 
as  a  guide  to  remedies — The  field  of  regulation — The  question  of  regulation — 
The  character  of  the  regulatory  body — Practices  to  be  regulated — Devices  to  be 
employed  in  regulation. 

THE  FACTS: 

The  interest  of  the  individual  to  conduct  his  business  as  he  chooses  and  the 
interest  of  the  public  that  he  shall  conduct  it  as  they  may  determine,  are  the 
two  factors  to  be  reckoned  with. 

In  English  economic  history  varying  relative  values  have  from  time  to  time 
been  assigned  to  these  factors.  A  large  measure  of  central  control  of  industry 
characterized  the  era  in  which  the  modern  state  emerged  from  decentralized 
feudalism.  This  in  time  produced  a  sharp  reaction  and  by  the  middle  of  the 
18th  Century  the  laissez  faire  principle  had  gained  well-nigh  universal  assent. 

In  the  century  that  has  just  passed  significant  economic  changes  have  oc- 
curred. These  must  be  reviewed  before  we  can  decide  to  what  extent  the  factor 
of  public  control  must  again  become  dominant. 

Large-Scale  Production. 

During  the  last  hundred  years  there  has  been  a  notable  growth  in  the  size  of 
business  units  in  many  lines.  While  many  operations  are  still  conducted  on  a 
small  scale  a  considerable  number  of  enterprises  are  huge  in  size.  Illustra- 
tions of  this  are  the  manufacture  of  iron  and  steel  and  the  meat  packing  indus- 
try. Where  this  growth  has  occurred  it  has  been  due  to  several  causes.  One  is 
the  introduction  of  machine  methods  which  call  for  a  very  large  investment  of 
capital  and  at  the  same  time  make  such  investments  profitable.  In  many  lines 
of  business  there  are  distinct  economies  in  large  scale  production  and  distribu- 
tion. Another  cause  is  the  development  of  the  corporate,  form  of  organization. 
Under  it  the  effective  direction  of  large  enterprises  becomes  easier  and  the  rais- 
ing of  large  sums  of  money  through  the  marketing  of  stocks  and  bonds  can  be 
accomplished  more  readily. 

THREE  FORCES  DEVELOPING  LARGE-SCALE  ENTERPRISES: 

With  growth  in  size  comes  the  tendency  to  monopoly,  although  it  is  to  be 
noted  that  large-scale  enterprises  are  not  necessarily  monopolistic  and  that  some 
monopolies  are  in  fact  quite  small  in  size.  Nevertheless,  the  two  are  often 
combined.  The  forces  that  have  given  us  these  large  scale  enterprises,  many 
of  which  diminished  competition  and  developed  monopoly  power,  are  three  in 
number. 

Elimination  of  Waste. 

One  is  the  desire  to  avoid  such  wastes  of  competition  as  can  be  eliminated 
through  combination.     Many  expenses  can  be  reduced  or  eliminated  after  com- 

219 


bination  is  effected.  Competitive  advertising  may  be  cuitailed  or  abandoned 
and  salesmen  discharged.  Cross  freights  may  be  eliminated,  some  officers  dis- 
missed and  other  miscellaneous  competitive  wastes  avoided.  These  are  savings 
in  expenditure. 

Increased  Receipts. 

A  second  force  tending  to  growth  in  the  size  of  industrial  units  is  the  de- 
sire to  increase  receipts.  Relieved  from  the  pressure  of  competition,  the  price 
of  the  product  in  question  is  no  longer  so  much  affected  by  costs.  Under  active 
competition  costs  may  be  relatively  high  for  all  concerned  but  the  selling  price 
will  presumably  be  little  if  any  higher  than  the  costs  of  that  competitor  whose 
costs  are  highest.  If  a  monopoly  gains  control  it  will  as  nearly  as  possible  ad- 
just its  prices  and  the  quality  of  its  se:vice  in  such  way  as  to  ^ve  it  the  high- 
est net  returns.    The  prospect  of  these  gains  is  a  strong  incentive. 

Reduction  of  Qve/head  Costs. 

A  third  force  closely  related  to  the  other  two  is  the  desire  by  combination 
to  reduce  heavy  overhead  expenses.  Large  scale  production  means  a  heavy 
capital  investment  and  consequent  heavy  overhead  charges.  This  makes  it  so 
necessary  to  secure  business  with  which  to  meet  the  overhead  expense  that  com- 
petition becomes  extremely  bitter.  In  fact,  competitors  will  be  tempted  to  take 
business  away  from  each  other  even  at  a  figure  which  gives  very  little  for  meet- 
ing overhead  expenses.  Actual  competition  under  such  conditions  soon  means 
bankruptcy  for  the  competitors.  This  almost  forces  them  into  some  kind  of  an 
agreement. 

Public  Distrust  of  Monopolistic  Enterprises. 

Public  distrust  of  these  large  units  has  become  a  characteristic  of  American 
public  opinion.  The  popular  impressions  which  explain  this  distrust  have  been 
classified  as  follows:* 

High  prices  due  to 

(1)  Monopoly  control 

(2)  Lack  of  economy 
Inefficient  service. 

Abuse  of  investors  through  issue  of  excessive  or  even  fraudulent  secu- 
rities. 
Abuse  of  employees. 
Political  corruption. 

Restrictive  Legislation. 

In  attempting  to  protect  itself  against  these  alleged  dangers  the  public  has 
sought  relief  (a)  by  appealing  to  the  common  law  and  (b)  by  enacting  specific 
statutes,  both  state  and  federal. 

These  enactments  have  resulted  in  forcing  business  into  three  groups.  The 
first  includes  those  lines  of  business  which  are  owned  and  operated  by  the  public. 
The  second  includes  those  which  though  privately  owned  and  operated  are  yet 
subject  to  a  very  large  amount  of  supervision.    The  business  enterprises  in  the 


L.  H.  Haney,  "Business  Organization  and  Combination.' 

220 


third  group  are  privately  owned  and  operated  and  are  subject  to  a  very  slight 
amount  of  supervision. 

A  little  reflection  shows  that  these  groups  differ  from  each  other  chiefly  in 
the  degree  of  public  control.  All  business  is  subject  to  a  measure  of  restraint, 
perhaps  only  by  such  statute^  as  our  pure  food  laws  or  by  taxes  and  licenses. 
Moreover,  the  line  of  distinction  between  the  groups  just  mentioned  is  obscured 
by  the  fact  that  regulation  is  of  so  many  kinds  and  degrees.  Nor  is  the  group- 
ing at  any  time  a  permanent  one,  for  our  attitude  toward  the  whole  question  is 
constantly  changing.  The  general  tendency  in  recent  years  seems  to  be  to  in- 
crease the  number  of  lines  of  business  actually  carried  on  by  the  government, 
to  add  to  the  number  subject  to  government  supervision  and  to  increase  the  ex- 
tent of  that  supervision.  Illustrations  of  enterprises  wholly  under  public  con- 
trol are  municipally  owned  water  works,  electric  and  gas  plants  and  the  Panama 
Canal.  Account  must  also  be  taken  of  current  proposals  for  government  own- 
ership and  operation  of  coal  mines. 

Although  this  increase  in  regulation  has  occurred,  it  has  been  paralleled  by 
another  movement  of  great  interest.  The  American  people  have  had  two  pos- 
sible ways  of  guarding  against  the  dangers  which  they  feared.  One  was  to 
permit  the  growth  of  large  enterprises,  even  encouraging  the  formation  of 
monopolies,  and  then  to  exercise  the  appropriate  measure  of  control  over  them. 
This,  as  we  have  seen,  has  to  some  extent  been  done.  The  other  possible  method 
was  to  prevent,  if  possible,  the  formation  of  large  concerns.  This  also  has  been 
tried  with  interesting  results.  The  so-called  "anti-trust"  statutes  were  passed 
to  carry  the  policy  of  prevention  into  effect. 

Business  organizations  may  be,  and  the  majority  of  them  are,  of  relatively 
simple  structure,  being  carried  on  under  individual,  partnership  or  corporate 
direction.  The  corporate  form  is  the  more  common  in  the  case  of  concerns  of 
any  considerable  size.  Under  the  pressure  of  the  influences  above  referred  to, 
these  corporations  many  years  ago  endeavored  to  work  in  harmony  by  forming 
pools  of  three  different  kinds,  output  or  traffic  pools,  territorial  or  market  pools, 
income  and  profits  pools.  Under  anti-trust  statutes,  federal  or  state,  and  in 
some  instances  by  the  application  of  common  law  principles,  all  these  forms  of 
pool  were  declared  by  the  courts  to  be  illegal. 

Pools  having  thus  been  discontinued,  the  next  form  in  which  the  tendency 
to  combine  manifested  itself  was  the  trust.  Stocks  of  competing  companies 
were  delivered  by  the  stockholders  to  trustees  in  exchange  for  trust  certificates, 
the  trustees  thus  being  enabled  to  direct  the  policies  of  the  formerly  competing 
companies  in  the  interest  of  all  of  them.  When  these  trusts  were  declared  illegal, 
or  even  earlier,  there  came  into  existence  various  devices  such  as  common  own- 
ership of  stock  and  interlocking  directorates  through  which  there  was  estab- 
lished a  community  of  interest  among  the  competitors.  More  or  less  effectual 
attempts  have  been  made  to  render  these  also  illegal. 

The  most  modern  form  of  combination  has  been  the  holding  company,  a  cor- 
poration which  does  not  directly  operate  any  properties  but  directs  their  opera- 
tion through  the  ownership  of  the  stock  of  the  operating  companies.  Holding 
companies  as  well  as  mergers  cannot  well  be  made  illegal  as  a  class  since  so 
many  of  them  serve  a  clearly  useful  purpose.  The  situation  has  accordingly 
been  met  in  other  ways.  The  Sherman  Act  of  1890,  the  most  important  of  all 
the  anti-trust  laws,  declares  illegal  "every  contract,  combination  in  the  form  of 

221 


a  trust  or  otherwise,  or  conspiracy,  in  restraint  of  trade  or  commerce  among  the 
several  States  or  with  foreign  nations." 

Vigorous  attempts  have  been  made  to  enforce  the  Sherman  Act  and  supple- 
mentary federal  statutes  of  the  same  type.  A  number  of  large  combinations 
have  been  attacked  by  the  U.  S.  Government,  some  of  them  being  declared 
illegal  and  ordered  to  dissolve.  Among  the  latter  have  been  the  Northern  Secu- 
rities Company,  the  Standard  Oil  Company,  the  American  Tobacco  Company 
and  more  recently  the  Reading  Company.  It  is  frequently  asserted  that,  these 
dissolutions  have  been  without  any  important  economic  results ;  but  the  govern- 
ment and  the  public  appear  still  to' favor  a  vigorous  attempt  to  enforce  the  anti- 
trust statutes. 

Recent  Corporate  Practices  and  Tendencies. 

In  the  last  few  years  several  important  but  somewhat  different  tendencies 
have  appeared.    These  may  be  arranged  in  four  groups  f 

(a)  Certain  practices  which  might  have  been  condemned  at  an  earlier  date 
have  now  been  definitely  legalized.  The  Clayton  Act  (1914)  has  legalized  the 
purchase  by  one  interstate  trading  company  of  the  stock  of  its  competitor,  for 
investment  purposes,  provided  that  such  purchase  is  not  used  to  restrain  trade 
or  to  restrict  competition.  The  shipping  Act  of  1916  has  legalized  agree- 
ments between  railway  carriers  subject  to  the  approval  of  the  United  States 
Shipping  Board.  The  Transportation  Act  of  1920  has  legalized  agreements 
between  railway  carriers  subject  to  the  approval  of  the  Interstate  Commerce 
Commission. 

(b)  Certain  combinations  are  now  definitely  permitted.  Labor  is  declared 
by  the  Clayton  Act  not  to  be  an  article  of  commerce.  The  annual  appropriation 
to  the  Department  of  Justice  forbids  the  use  of  such  current  appropriations  to 
enforce  the  Sherman  Act  against  combinations  of  laborers  or  farmers.  The 
Webb-Pomerene  Act  of  1918  permits  combinations  of  competing  concerns  for 
export  trade.  Finally,  the  United  States  Supreme  Court  in  its  decision  in  1920 
of  the  case  against  the  United  States  Steel  Corporation  permits  in  effect  any 
combination  no  matter  what  its  power  may  be  by  saying  that  "the  law  does  not 
make  mere  size  an  offense  or  the  existence  of  unexerted  power  an  offense." 

(c)  During  the  war  our  government  (as  well  as  the  governments  of  other 
countries)  regulated  commerce  and  industry  to  a  far  greater  extent  than  ever 
before.  Some  industries  (e.  g.,  the  railroads)  were  actually  operated  by  the 
government,  while  others  were  subjected  to  a  very  close  supervision.  This  was 
done  (1)  in  order  to  secure  more  effective  production,  (2)  in  order  to  protect 
the  community  against  unduly  high  prices,  and,  (3)  because  of  the  financial 
weakness  of  certain  industries. 

(d)  The  governments  of  many  countries  have  undertaken  an  active  direc- 
tion of  their  economic  life.  Before  the  war  Germany  was  particularly  active  in 
this  direction.  Germany's  economic  life  was  closely  organized  with  Imperial  ap- 
proval and  under  Imperial  direction,  with  a  view  to  furthering  German  inter- 
ests in  opposition  to  those  of  other  countries  in  all  parts  of  the  world. 

Since  the  war  other  countries  are  closely  following  this  German  example. 
Under  the  leadership  of  the  British  Board  of  Trade  and  such  private  organiza- 
tions as  the  Federation  of  British  Industries  and  the  British  Manufacturers' 
Association,  Great  Britain  is  seeking  to  unify  her  economic  life,  particularly 
with  a  view  to  strengthening  her  foreign  trade.     In  France  there  are  many 

222 


organizations  and  movements  to  further  trade  development  and  in  the  Scand- 
inavian countries  similar  efforts  are  being  made.  Even  in  Japan  the  most 
aggressive  measures  are  being  taken  with  the  same  end  in  view. 

SUMMARY  OF  FACTS: 

Such  are  the  facts  which  must  be  borne  in  mind  when  we  seek  to  identify 
the  problems  of  industrial  regulation  and  to  find  their  appropriate  solutions. 
This  brief  survey  may  be  summarized  by  saying  that  there  is  a  very  defi- 
nite tendency  in  the  United  States  toward  large  scale  production  and  toward  the 
development  of  monopoly  power ;  that  the  American  public  has  felt  that  large 
scale  production  tends  to  monopoly,  is  accordingly  to  be  feared  and  has 
attempted  to  allay  its  fears  either  by  discountenancing  large  industrial  com- 
bination altogether  or  by  recognizing  its  existence  and  subjecting  it  to  a  greater 
or  less  degree  of  regulation ;  and  that  during  the  war  the  amount  of  regulation 
was  very  much  increased  and  since  the  war  the  governments  of  many  foreign 
countries  are  vigorously  organizing  and  directing  commerce  and  industry. 

PROBLEMS  RAISED  BY  SOME  PROPOSED  REMEDIES: 

The  most  immediate  problem  is  that  of  deciding  for  or  against  the  curtail- 
ment of  the  unusual  amount  of  regulation  that  has  existed  during  and  since  the 
war. 

In  favor  of  reducing  the  amount  of  this  regulation  it  may  be  argued  that  it 
was  purely  a  war  measure,  and  assented  to  because  of  a  belief  that  victory 
would  thereby  be  secured  more  speedily ;  and  that  it  was  supported  by  patriotic 
fervor.  Now  that  the  war  is  over,  much  if  not  all  of  the  need  for  such  regulation 
has  disappeared  and  business  men  will  chafe  in  times  of  peace  under  restraints 
to  which  they  willingly  submitted  dur'ng  the  war.  Moreover,  it  is  contended 
that  government  operation  and  strict  regulation  has  shown  serious  defects  and 
demonstrated  itself  a  failure. 

Continuing  War-Time  Regulation. 

In  favor  of  continuing  at  least  for  a  time  the  same  measure  of  control  by 
the  government  as  was  exercised  during  the  war  it  may  be  urged  that  the  effects 
of  the  war  are  by  no  means  gone ;  that  until  commerce  and  industry  are  in  a 
more  normal  state  the  pubhc  will  still,  need  protection ;  and  that  many  lines  of 
business  will  for  a  time  need  government  assistance. 

These  are  considerations  having-  to  do  with  our  policy  in  the  very  immedi- 
ate future.  A  decision  has  been  rendered  in  the  case  of  the  railroads  which 
have  been  returned  to  private  operation  but  with  a  larger  measure  of  govern- 
ment supervision  than  formerly.  Restrictions  in  many  other  directions  have 
also  been  removed,  e.  g.,  on  the  price  of  coal. 

When  the  problem  of  transit  trom  war  conditions  to  a  piece  basis  has  been 
solved,  a  permanent  policy  ought  to  be  formulated.  Our  legislation  has  for  the 
most  part  been  against  the  formation  of  combinations  and  the  United  States 
Supreme  Court  has  ordered  the  dissolution  of  several  very  large  and  important 
corporations,  an  important  exception  bc-ng  the  United  States  Steel  Corporation, 
as  already  mentioned. 

This  policy  has  been  based  on  the  belief  that  competition  is  usually  salu- 
tary and  that  its  enforcement  willi  result  in  the  greatest  good  to  the  largest 

323 


number.  Exceptions  are  of  course  to  be  found  in  those  lines  of  business  which 
are  owned  and  operated  by  the  government  or  have  been  brought  under  close 
government  supervision  and  regulation. 

Difficulties  of  Enforcing  Competition. 

It  is  doubtful  if  any  very  large  amount  of  competition  can  be  enforced  be- 
tween competitors  that  have  much  to  lose  by  it  or  who  have  much  to  gain  by 
coming  together.  Formal  organizations  may  be  broken  up  by  court  decree  but 
informal  agreements  are  difficult  to  detect.  Holding  companies  may  be  dissolved 
but  private  understandings  may  readily  be  concealed.  Even  an  association  of 
manufacturers  in  similar  or  related  lines  of  business  may  be  utilized  most  effec- 
tively as  a  medium  through  which  agreements  on  policy  may  be  reached. 

It  is  also  not  certain  that  the  enforcement  of  competition  is  a  good  policy 
even  where  it  is  possible.  If  there  are  real  economies  to  be  secured  through 
combination  the  public  should  perhaps  endeavor  to  secure  the  benefit  of  those 
economies.  The  alternatives  in  our  policy  seem  to  be  (a)  trying  to  enforce  com- 
petition in  spite  of  the  very  dubious  results  of  our  previous  efforts  in  that  direc 
tion  and  (b)  accepting  combination  as  necessary  or  desirable  or  both  and 
attempting  to  protect  ourselves  against  any  dangers  that  it  may  present. 

Advantages  and  Disadvantages  of  Governmental  Regulation. 

An  answer  cannot  be  given,  however,  without  reference  to  a  number  of 
other  urgent  and  most  pertinent  questions.    Among  them  are  the  following: 

1.  Since  organizations  of  laborers  and  farmers  are  permitted  will  some  form 
of  control  over  them  become  advisable? 

2.  Charges  have  from  time  to  time  been  made  that  certain  employers  or 
groups  of  employers  have  entered  into  agreements  with  their  employees  to  the 
effect  that  strikes  shall  be  carried  on  with  apparent  success,  the  rise  in  wages  be- 
ing utilized  before  the  public  as  an  excuse  for  *a  very  considerable  increase  in 
prices.  Both  employers  and  employees  benefit  from  this.  If  such  agreements  do 
or  can  exist  is  a  greater  measure  of  control  needed  to  protect  the  public? 

3.  Has  the  war  so  furthered  centralizing  tendencies  in  many  lines  of  busi- 
ness as  to  make  a  return  to  pre-war  competition  in  those  lines  impossible  or  even 
undesirable?  If  so,  is  a  considerable  measure  of  regulation  of  these  concerns 
advisable  ? 

4.  Has  our  experience  during  and  since  the  war  demonstrated  conclusively 
either  the  effectiveness  or  the  ineffectiveness  of  government  regulation  ? 

5.  If  the  tendency  toward  larger  business  units  continues  will  the  public 
find  it  advisable  to  continue  or  increase  regulation  as  a  means  of  protection? 

6.  Will  the  movements  in  many  foreign  countries  described  above  make 
necessary  similar  government  encouragement  in  the  United  States  and,  if  so, 
will  it  make  necessary  increased  regulation? 

7.  Will  all  of  our  corporations  be  able  to  meet  their  financial  needs  in  the 
open  market  or  will  some  of  them  need  government  assistance  ?  If  the  latter, 
will  that  bring  with  it  a  larger  measure  of  control  ? 

8.  Should  regulation  be  extended  to  other  lines  of  commerce  and  industry 
than  those  where  we  now  find  it  or  be  exercised  to  a  greater  degree  than  r' 
present  ? 

9.  Should  the  tendency  be  toward  a  larger  measure  of  federal  rather  than 
state  regulation? 

224 


10.  Is  there  a  logical  or  even  a  fairly  permanent  line  of  division  between 
those  businesses  that  are  properly  subject  to  regulation  and  those  that  are  not? 
Are  not  all  of  them  under  some  measure  of  control,  the  differences  being 
merely  in  degree?  Is  there  any  fixed  distinction  betv^^een  those  subject  to  a 
very  considerable  degree  of  regulation  and  called  public  utilities  and  others  not 
so  called,  or  is  this  grouping  constantly  changing? 

These  and  other  questions  must  receive  an  answer  before  a  final  decision  is 
reached  on  our  attitude  toward  the  need  for  regulation,  the  general  field  in 
which  it  should  be  exercised  and  the  extent  to  which  it  should  be  carried. 

There  must  also  be  a  decision  regarding  the  character  of  the  regulatory 
body.  The  proper  limits  of  Federal  as  contrasted  with  State  authority  must  be 
determined.  In  either  of  these  two  jurisdictions  there  are  four  methods  of 
regulation  that  may  be  employed :  (a)  Statutory  enactment  to  be  interpreted 
by  judicial  decision,  (b)  statutory  grant  of  regulatory  authority  to  an  indi- 
vidual, as,  for  example,  the  Secretary  of  Commerce,  (c)  statutory  grant  of 
regulatory  authority  to  a  special  commission  created  for  the  purpose,  as  the 
Interstate  Commerce  Commission,  the  Federal  Trade  Commission  and  the  va- 
rious public  service  commissions,  and  (d)  taxation.  Choices  must  be  made 
between  these  methods,  one  of  them  perhaps  being  better  at  one  time  and 
another  at  another. 

It  is  necessary  also  to  determine  the  particular  practices  that  should  be 
regulated  and  the  devices  to  be  employed. 

PUBLIC  SENTIMENT  AS  A  GUIDE  TO  REMEDIES: 

In  an  attempt  to  secure  valuable  opinions  on  the  numerous  questions  men- 
tioned above  and  to  ascertain  the  general  attitude  of  the  public  toward  the  reg- 
ulation of  commerce  and  industry,  your  committee  prepared  and  distributed  a 
questionnaire  on  the  subject.  The  inquiry  was  divided  into  five  parts,  dealing 
with  (a)  the  field  of  regulation,  (b)  the  extent  of  regulation,  (c)  the  charac- 
ter of  the  regulatory  body,  (d)  the  practices  to  be  regulated  and  (e)  the  devices 
to  be  employed  in  regulation.  The  opinions  expressed  in  the  replies  to  the  ques- 
tionnaires may  be  arranged  under  these  five  headings. 

The  Field  of  Regulation. 

There  seems  to  be  little  doubt  but  that  public  opinion  supports  regulation 
of  those  lines  of  business  usually  known  as  public  utilities  and  that  for  the  most 
part  other  classes  of  business  should  be  subjected  to  little  or  no  regulation. 
There  seems  to  be  a  general  recognition,  however,  of  the  fact  that  there  are 
some  classes  of  business  affected  with  a  public  interest  whose  classification  is 
not  entirely  clear  and  that  the  field  of  regulation  is  subject  to  change  from  time 
to  time.  The  answers  submitted  demonstrated  a  conviction  that  the  number  of 
classes  of  business  which  should  be  subjected  to  regulation  has  had  si  tendency 
to  increase  during  recent  years  and  that  changes  are  still  constantly  occurring. 

Opinions  seem  to  be  rather  divided  regarding  those  lines  of  government 
control  in  effect  during  the  war.  A  considerable  majority  of  the  replies  re- 
ceived favored  discontinuing  all  of  this  government  control,  while  the  rest  of 
those  who  expressed  their  views  favored  continuing  a  few  of  them,  the  choices 
varying  somewhat  widely.  Some  felt  that  such  failures  as  occurred  were 
unpreventable  and  were  bound  to  occur  under  government  control.  Still  more, 
however,  took  the  view  that  the  mistakes  that  occurred  were  preventable  and 

225 


could  have  been  avoided  under  more  careful  administration  and  by  less  em- 
phasis on  political  considerations  in  appointments  and  management.  The  effects 
of  the  Webb-Pomerene  Act  were  discussed,  a  slight  majority  opinion  being  to 
the  effect  that  the  distinction  set  up  by  that  act  between  combinations  for  ex- 
port trade  and  those  for  import  or  for  domestic  trade  is  not  to  be .  approved, 
and  that  it  will  disappear  in  a  short  time.  This  view  seems  to  emphasize  the 
thought  that  all  classes  of  business  are  so  closely  inter-related  that  distinctions 
of  this  sort  are  hard  to  maintain. 

The  Question  of  Regulation. 

Opinion  seems  clear  that  any  increase  in  equipment  and  in  output  in  any 
line  of  business  which  is  accompanied  by  a  tendency  toward  monopoly  calls  for 
a  considerable  amount  of  regulation,  but  that  a  mere  increase  in  physical  equip- 
ment and  in  volume  of  output  with  no  tendency  toward  monopoly  does  not  call 
for  regulation.  It  is  also  held  that  a  combination  of  units,  formerly  under 
separate  control  but  without  any  increase  in  equipment  or  in  output,  the  combi- 
nation being  formed  for  some  other  purpose  than  monopoly,  does  not  call  for 
any  considerable  amount  of  regulation.  Moreover,  mere  size  does  not  seem  to 
be  the  occasion  for  regulation  in  the  judgment  of  those  who  answered  the  ques- 
tionnaires. They  considered  size  significant  only  in  so  far  as  size  develops  a 
power  that  must  be  regulated. 

Attention  was  called  in  the  questionnaire  to  the  growth  of  the  number  of 
miscellaneous  organizations  and  associations  of  manufacturers  and  others  in 
similar  or  related  lines  of  business,  illustrations  being  the  various  manufactur- 
ers' associations.  Some  have  urged  that  these  organizations  are  having  such  an 
influence  that  attention  should  be  given  to  their  regulation.  A  large  majority 
of  the  opinions  are  against  this,  although  a  number  of  replies  expressed  ap- 
proval of  the  idea. 

Tariffs  for  the  assistance  of  certain  industries  were  approved  in  the  major- 
ity of  replies,  but  assistance  of  other  sorts,  as,  for  example,  subsidies,  met  much 
less  favor. 

Federal  incorporation  of  license  for  those  lines  of  business  whose  activities 
are  clearly  inter-state  was  approved. 

There  was  a  very  clear  recognition  of  the  problem  raised  by  the  financial 
needs  of  our  public  utilities  and  especially  of  our  railroads  at  the  present  time, 
and  it  was  felt  that  these  corporations  will  have  considerable  difficulty  in  mar- 
keting their  securities  in  competition  with  those  domestic  industries  which  are 
subject  to  little  or  no  regulation.  i 

A  considerable  majority  were  of  the  opinion  that  the  competition  of  many 
foreign  securities  might  be  very  definitely  felt.  In  the  face  of  these  financial  dif- 
ficulties most  of  the  replies  favored  allowing  such  increases  in  prices,  rates  and 
fares  as  will  make  possible  a  higher  rate  of  return  for  these  companies,  thus 
making  their  securities  a  more  attractive  investment.  Most  of  the  replies 
definitely  opposed  refusing  these  increases,  thus  making  it  necessary  for  the 
corporations  in  question  to  secure  financial  aid  from  the  government.  The  trend 
of  opinion  on  this  point  seemed  to  be  very  emphatic  against  reliance  on  gov- 
ernment assistance. 

The  relation  between  the  government  and  those  combinations  of  exporters 
permitted  by  the  Webb-Pomerene  Act  was  recognized.  Opinions  regarding 
that  relationship  were  divided ;  but  a  majority  of  the  replies  were  to  the  effect 

226 


that  if  such  combinations  are  to  be  permitted  they  are  properly  subject  to  regu- 
lation. Moreover,  it  was  argued  that  the  provisions  of  the  law  should  be 
extended  to  permit  combinations  of  importers  and  that  a  similar  amount  of 
regulation  of  them  might  be  necessary.  The  action  of  many  foreign  govern- 
ments in  encouraging  the  organization  of  manufacturing,  commercial  and 
banking  concerns  to  capture  world  trade  led  to  a  very  emphatic  expression  of 
opinion  that  similar  organizations  should  be  encouraged  in  the  United  States, 
and  the  majority  of  the  replies  were  to  the  effect  that  if  such  organizations  are 
formed  they  will  need  to  be  subjected  to  regulation. 

The  recent  decision  of  the  Supreme  Court  of  the  United  States  in  which 
it  refused  to  order  the  dissolution  of  the  United  States  Steel  Corporation  sug- 
gested the.  possibility  that  some  might  urge  the  necessity  for  a  larger  amount 
of  regulation  than  in  the  past  in  order  to  protect  public  interests  against  a  con- 
siderable number  of  large  organizations  that  might  be  formed  because  encour- 
aged by  this  decision.  The  judgment  expressed  on  this  point  was  adverse,  it 
being  held  that  public  interests  are  sufficiently  protected  by  existing  legislation. 
Government  encouragement  through  such  cooperative  organizations  as  are  illus- 
trated by  our  farm  loan  banks  are  disapproved  by  a  slight  majority. 

There  is,  of  course,  a  difference  between  one's  personal  convictions  on  the 
subject  of  regulation  and  his  opinion  regarding  the  attitude  of  the  general  pub- 
lic. A  very  considerable  majority  of  those  who  answered  the  questionnaires 
is  to  the  effect  that  public  opinion  is  in  favor  of  regulation.  A  number  ex- 
pressed this  view,  while  at  the  same  time  registering  their  own  disapproval  of 
any  considerable  amount  of  regulation.  ^ 


THE  CHARACTER  OF  THE  REGULATORY  BODY: 

There  has  been  for  many  years  a  certain  amount  of  conflict  over  the  juris- 
diction of  state  and  federal  authorities.  Often  both  have  regulatory  power 
over  the  same  subject.  Most  of  the  replies  expressed  approval  of  allowing  the 
federal  authorities  to  be  given  the  preference  in  cases  where  there  is  any  op- 
portunity for  dispute. 

Inquiry  was  also  made  regarding  the  desirable  method  of  regulation.  Ma- 
jority opinion  favored  special  commissions  created  for  the  purpose,  such  as  the 
Interstate  Commerce  Commission,  the  Federal  Trade  Commission  and  the  vari- 
ous public  service  commissions.  Although  the  Federal  Trade  Commission  in 
particular  was  felt  to  be  a  failure,  this  failure  was  thought  by  some  to  be  due 
both  to  defects  in  the  law  and  to  the  administration  of  the  law,  but  a  consid- 
erable number  of  replies  held  that  it  was  due  merely  to  the  way  in  which  the 
law  was  administered.  A  small  minority  felt  that  the  Federal  Trade  Commis- 
sion has  functioned  successfully. 

A  very  few  only  favored  the  granting  of  regulatory  authority  to  a  specific 
individual,  as,  for  example,  the  Secretary  of  Comrherce  or  the  Secretary  of  La- 
bor, it  being  held  that  no  single  individual  should  be  entrusted  with  so  niuch 
power.  A  number  approved  relying  chiefly  on  mere  statutory  enactment  incor- 
porated by  judicial  decision  and  a  smaller  number  on  exercise  of  the  tax  power, 
it  being  held,  however,  by  the  majority  that  some  of  these  methods  are  to  be 
used  in  some  cases  and  others  in  others. 

Some  of  the  answers  expressed  the  opinion  that  the  public  is  distinctly 

227 


prejudiced  against  the  courts  but  the  majority  felt  that  this  prejudice  existed 
to  no  considerable  degree. 

In  their  estimates  of  existing  legislation  the  majority  seemed  quite  sat- 
isfied with  retaining  on  the  statute  books  the  Sherman  Act,  the  Clayton  Act 
and  other  anti-trust  legislation.  A  few  only  favored  the  repeal  of  the  Clay- 
ton Act  and  a  very  few  the  repeal  of  all  such  statutes.  On  the  other  hand, 
there  is  very  strong  opposition  to  the  enactment  of  legislation  forbidding  more 
specifically  than  does  the  Sherman  Act  the  creation  of  combinations. 

PRACTICES  TO  BE  REGULATED: 

The  regulation  of  charges,  quality  of  service  and  accounting  methods  in 
those  lines  of  business  known  as  public  utilities  was  very  definitely  approved, 
only  a  minority  favoring  the  extension  of  this  regulation  in  other  directions. 
A  few  insisted  that  it  should  be  extended  to  monopolies.  Opinion  was  particu- 
larly strong  in  favoring  issuing  securities  only  after  approval,  particularly  by 
public  utilities,  although  a  number  of  expressions  of  opinion  were  very  em- 
phatically in  favor  of  extending  this  method  of  control  to  other  lines  of  business 
also. 

Since  it  has  been  argued  by  some  that  pools  of  various  sorts  should  be  ap- 
proved, the  questionnaires  contained  references  to  different  types  of  pools. 
Opinion  was  emphatic  against  permitting  pools  of  income  and  profits  that  are 
to  be  divided  among  the  members  in  accordance  with  some  pre-arranged  plan. 
There  was  also  some  objection,  though  less  emphatic,  to  territorial  or  market 
pools,  while  there  was  some  approval  of  output  or  traffic  pools.  On  the  whole, 
replies  to  this  question  were  somewhat  mixed  with  an  emphatic  expression  only 
in  opposition  to  income  and  profits  pools.  On  the  whole,  there  seemed  to 
be  a  dread  of  pools  by  a  considerable  number  who  did  not  thoroughly  analyze 
and  distinguish  between  the  different  types. 

DEVICES  TO  BE  EMPLOYED  IN  REGULATION: 

The  replies  strongly  approve  publicity  as  a  valuable  device,  some  appar- 
ently feeling  that  it  is  of  itself  quite  satisfactory.  Uniform  methods  of  account- 
ing also  were  felt  to  be  important.  A  considerable  majority  held  to  the  view 
that  it  is  helpful  to  have  some  regulatory  individual  or  body  with  power  to  ad- 
vise concerning  the  legality  of  proposed  practices  in  order  that  a  business  man 
may  know  in  advance  that  the  procedure  he  proposes  to  follow  is  within  the 
law.  This  opinion  was  expressed  in  spite  of  the  feeling  of  many  that  the  Fed- 
eral Trade  Commission  has  not  functioned  satisfactorily  and  perhaps  is  to  be 
explained  by  the  belief  of  many  that  the  difficulty  was  not  due  to  the  law  but 
to  the  way  in  which  the  law  has  been  administered  in  recent  years.  A  few 
urged  that  advice  of  this  sort  should  be  secured  from  the  courts.  The  use  of 
the  tax  power  by  the  government  for  purposes  of  regulation  was  on  the  whole 
disapproved,  but  not  by  any  considerable  majority. 


National  Economy,  Retrenchment 
and  Budget 


Report  of  Sub-Committee 


JAMES  W.  GOOD 

Chairman 


ARTHUR  W.  PROCTER 

Staff  Assistant 


NATIONAL  ECONOMY,  RETRENCHMENT  AND 

BUDGET 

Although  the  Overman  Act  invested  the  President  of  the  United  States 
with  ample  powers  of  organization  and  leadership,  the  administration  failed  to 
develop  a  constructive,  far  sighted  or  adequate  program  to  meet  the  demand 
for  after-war  readjustment  and  retrenchment.  Agencies  created  during  the  war 
have  been  allowed  to  survive  their  usefulness;  the  expenditure  policy — sixteen 
months  after  the  armistice — reflects  wartime  inflation  rather  than  rigid  peace- 
time economy;  the  multiplicity  of  departments,  boards  and  independent 
agencies  have  lacked  real  leadership  and  effective  co-ordination;  "many  thous- 
ands of  unnecessary  employees"  now  encumber  the  Federal  service.  The  re- 
sult has  been  waste  and  inefficiency  in  every  direction.  The  direct  and  in- 
direct tax  levies  of  today  are  unparalleled  in  our  history.  But  the  total  rev- 
enue from  this  and  other  sources,  approximating  $6,500,000,000,  will  fall  short 
of  the  estimated  expenditure  of  the  current  year  by  approximately  $600,000^- 
000 — a  sum  almost  equal  to  the  entire  cost  of  the  Federal  activities  (not  in- 
cluding the  Postal  Service)  during  the  year  1916.  New  and  necessary  obliga- 
tions have  indeed  been  incurred  during  the  war ;  and  the  unit  cost  of  personal 
service  and  of  materials  has  increased  from  25  to  50  per  cent.  At  the  same 
time,  the  present  high  cost  of  govermient  is  in  large  part  unnecessary.  By 
a  carefully  planned  readjustment  to  a  peacetime  basis  and  by  a  policy  of  rigid 
economy,  the  annual  expenses  of  federal  operation  can  be  reduced  hundreds 
of  miUions  of  dollars  without  impairing  the  efficiency  of  the  public  service. 
The  immediate  steps  to  accomplish  this  include  the  preparation  of  a  plan  of 
reorganization;  the  rapid  termination  of  war  work  and  war  agencies;  improve- 
ment in  the  co-ordination  of  departmental  activities;  elimination  of  unneces- 
sary federal  officials  and  employees;  raising  the  standard  of  individual 
efficiency;  the  introduction  of  a  budget  system  for  the  control  of  revenues  and 
expenditures. 

SIGNIFICANT  FISCAL  FACTS. 

Current  expenditures  of  more  than  nine  times  the  annual  pre-war  ex- 
penditures (not  including  the  postal  service) ;  an  anticipated  current  deficit, 
June  30,  1920,  of  more  than  the  entire  cost  of  the  Civil  War;  an  enormous 
funded  debt  (that  is,  exclusive  of  the  "floating"  debt)  of  approximately  $22,- 
000,000,000 — these  are  the  outstanding  facts  as  to  the  present  operating  costs 
of  the  Federal  Government  and  its  financial  condition. 

The  exact  situation  may  be  summarized  as  follows: 

(a)  For  the  fiscal  year  ending  June  30th,  1920,  current  revenues  exclu- 
sive of  public  debt  will  approximate  $6,500,000,000;  the  current  expendi- 
tures exclusive  of  public  debt  payments,  will  approximate  $7,100,000,000 
according  to  a  forecast  submitted  by  the  Secretary  of  the  Treasury  to 
the  Chairman  of  the  Appropriations  Committee  of  the  House  of  Repre- 
sentatives under  date  of  April  8th.  In  other  words,  the  operating  ex- 
penses of  the  Government  will  exceed  operating  receipts  by  $600,000,000. 

(b)  This  forecast  of  the  Secretary   of  the  Treasury  was  intended  to 

231 


cover  the  several  uncertainties  in  the  situation — ^notably  the  expenditures 
for  the  Railroads,  the  Wheat  Guaranty,  etc. 

The  1920  disbursements  up  to  May  20  amounted  to  $5,782,884,508.  This 
was  an  excess  of  $496,561,610  over  receipts.  The  normal  disbursements 
for  the  balance  of  the  fiscal  year  <6  weeks)  including  the  interest  pay- 
ment on  the  public  debt  should  not  exceed  $650,000,000,  to  which  must  be 
added  expenditures  growing  out  of  Federal  Control  of  Railroads  for  which 
appropriations  of  approximately  $825,000,000  are  now  available.  It  is 
probable,  however,  that  the  expenditure  of  these  funds  will  be  deferred  in 
large  part  until  the  fiscal  year  1921,  and  that  the  total  of  all  disbursements 
for  1920  will  not  exceed  $6,750,000,000. 

(c)  The  appropriations  requested  by  the -Administration  for  the  fiscal 
year  ending  1921,  in  the  regular  annual  estimates,  amounts  to  $4,865,410,- 
032.  Later  supplemental  estimates  submitted  by  the  Administration  and 
allowances  necessary  to  cover  items  omitted  from  the  original  estimates 
exceed  $400,000,000.  This  amount,  if  allowed  in  its  entirety  by  Congress, 
would  preclude  any  real  improvement  in  the  financial  condition  bf  the 
Federal  Government  during  the  succeeding  fiscal  year  on  the  basis  of  exist- 
ing revenue  measures. 

(d)  The  National  Public  Debt  on  June  30,  1919,  was  $25,484,506,160. 
This  includes  both  the  so-called  "'funded"  debt  and  "unfunded"  or  "float- 
ing" debt.  The  latter  is  generally  restricted  in  its  application  to  the  out- 
standing Treasury  certificates  of  indebtedness,  issued  in  anticipation  of 
receipts  from  taxes  and  war  loan  issues,  which  amounted  to  $3,633,804,- 
490,  June  30,  1919.  The  "funded"  debt  amounted  to  $21,850,701,670  at 
that  date. 

On  June  30th,  1919,  the  Treasury  of  the  United  States  had  a  cash 
balance  of  $1,251,664,827.  This  balance  has  gradually  decreased — with 
minor  fluctuations  up  and  down — to  $251,622,538  on  March  31, 1920.  Assum- 
ing, however,  the  continuance  of  the  cash  balance  which  existed  June  30, 

1919,  the  total  national  debt  obligations  would  reflect  as  a  result  of  cur- 
rent fiscal  operations,  an  excess  of  expenditures  over  revenue  of  $600,- 
000,000.^ 

(e)  The  Secretary  of  the  Treasury  in  his  annual  report  for  the  fiscal  year 
1919  forecasted  a  deficit,  June  30,  1920,  of  $3,156,888,543.  In  arriving  at 
this  forecast  he  considered  the  "floating"  debt  above  referred  to  as  a 
charge  upon  the  general  fund — an  incumbrance,  so  to  speak,  upon  the  cur- 
rent revenue  and  tax  receipts  of  the  current  year. 

This  estimated  deficit  was  predicated  on  the  incomplete  facts  then  be- 
fore the  department.  The  Secretary  of  the  Treasury  in  his  letter,  re- 
ferred to,  of  April  8,  1920,  submitted  revised  estimates  of  receipts  and 
expenditures  which  point  to  a  larger  deficit  in  General  Fund  on  June  30, 

1920,  than  was  indicated  in  his  original  forecast. 

The  Secretary,  in  the  same  statement,  forecasts  that  this  deficit  will 
be  reduced  to  the  extent  of  approximately  $600,000,000  during  the  fiscal 
year  1921. 


iThe   total  debt,  May  15,   1920,  was   $24,931,282,846. 

232 


THE    PROBLEM    OF    RECONSTRUCTION. 

The  great  war  upon  which  the  nation  entered  in  April,  1917,  brought  with 
it  a  problem  of  construction  and  organization  such  as  never  before  taxed  its 
political  leaders.  It  called  forth  the  cooperation  of  the  whole  people.  When 
on  November  11,  1918,  the  armistice  was  signed,  the  demand  for  demobiliza- 
tion and  reconstruction  was  just  as  clearly  seen.  The  nation's  resources  had 
been  drained.  The  need  for  shifting  machinery  and  costs  of  government  from 
war  inflation  to  a  basis  of  rigid  peacetime  economy  was  imperative. 

The  reconstruction  problem  then  confronting  the  Administration  and  Con- 
gress may  be  simply  stated: 

(a)  To  reduce  expenditures  of  the  Federal  Government  to  a  normal 
peace  basis  by  the  maximum  retrenchment  in  costs  consistent  with  the 
public  welfare. 

(b)  By  such  retrenchment  measures  to  provide  funds  froni  current 
revenues  for  the  early  liquidation  of  the  floating  debt,  and  to  develop  a 
policy  for  the  liquidation  of  the  bonded  debt  which  will  be  least  harmful 
and  burdensome  to  the  American  people. 

For  the  first  time  in  our  history,  responsibility  for  leadership  in  the  work 
of  reconstruction  was  placed  where  it  belonged — on  the  President. 

The  Overman  Act  had  been  passed  in  1918  (May  20).    This  Act  pro- 
vided : 

"That,  for  the  national  security  and  defense,  for  the  successful  prosecu- 
tion of  the  war,  for  the  support  and  maintenance  of  the  army  and  navy, 
for  the  better  utilization  of  resources  and  industries,  and  for  the  more  effec- 
tive exercise  and  more  efficient  administration  by  the  President  of  his 
powers  as  Commander  in  Chief  of  the  Land  and  Naval  forces,  the  Presi- 
dent is  hereby  authorized  to  make  such  redistribution  of  functions  among 
executive  agencies  as  he  may  deem  necessary,  including  any  functions, 
duties  and  powers  hitherto  by  law  conferred  upon  any  executive  depart- 
ment, commission,  bureau,  agency,  office  or  officer  in  such  manner  as  in 
his  judgment  shall  seem  best  fitted  to  carry  out  the  purposes  of  this 
Act." 
The  Act  further  provides: 

"That,  in  carrying  out  the  purposes  of  this  Act  the  President  is  author- 
ized to  utilize,  coordinate  or  consolidate  any  executive  or  administrative 
commissions,  bureaus,  agencies,  offices  or  officers  now  existing  by  law,  to 
transfer  any  duties  or  powers  from  one  existing  department,  commis- 
sion, bureau,  agency,  office  or  oflSicer  to  another." 

The  Act  was  made  effective  during  the  war  and  for  six  months  after  its 
termination. 

This  Act  called  for  planning;  it  called  upon  the  President  for  a  program. 
It  gave  him  the  authority  and  power  with  which  to  put  that  program  into  effect 
and  meet  the  war  emergency.     When  the  war  was  over,  it  left  him  with  the 
same  broad  power  to  reorganize,  retrench  and  demobilize. 
This  leadership  has  not  been  furnished. 

Analysis  of  the  expenditures  proposed  and  operations  recommended  by 
the  Administration  for  the  fiscal  year  ending  June  30,  1920,  and  the  fiscal  year 
ending  June  30,  1921,  reveal  war-time  inflation— rather  than  rigid  peacetime 
Economy.    Questions  of  national  retrenchment  have  been  neglected  or  ignored. 


THE  ADMINISTRATION'S  EXPENDITURE    PROGRAM    FOR    1920    COM- 
PARED WITH  PRE-WAR  EXPENDITURES. 

The  pre-war  activities,  and  the  cost  of  maintaining  those  activities,  should 
be  the  starting  point  of  discussion  and  analysis  which  contemplates  readjust- 
ment to  normal  conditions. 

It  is  realized  that  there  are  legitimate  influences  and  burdens  of  the  war 
which  survive— burdens  which  would  prevent  an  immediate  return  to  pre-war 
cost  of  operations.  Nevertheless,  the  pre-war  period  furnishes  the  only  accu- 
rate base  of  comparison.  It  presents  administrative  activities  developed  on  a 
basis  comparable  to  conditions  which  are  now  existing  and  which  will  exist 
during  the  fiscal  year  1921.  ^ 

More  than  $11,000,000,000  Requested  for  1920. 

The  Wilson  Administration  requested  the  65th  and  66th  Congresses  to  ap- 
propriate for  the  fiscal  year  ending  June  30,  1920,  (including  certain  minor 
,  items  for  1919  Deficiency),  the  sum  of  .$11,459,323,267.  This  amount  is  made 
up  of  two  items:  the  original  requests  (regular  annual  estimates)  which 
amounted  to  $8,089,667,298,  and  the  su  pplemental  estimates,  not  included  in 
the  original  requests,  which  amounted  to  $3^69,655,969.  The  following  shows 
the  distribution  of  the  original  and  supplemental  requests  for  the  fiscal  year 
1920  by  appropriation  bill : 


Appropriation  Bill  Title 
EEGULAR 

a.  Agriculture  

b.  Army  

c.  Diplomatic  and  Consular 

d.  District  of  Columbia 
6.  Fortifications   

f.  Indian   

g.  Legislative,  Executive  and  Judicial 
h.  Military  Academy 

i.    Navy 

j.    Pensions   " 

k.  Post  Office 

1.    River  and  Harbor 

m.  Sundry  Civil 

Total  Regular 


1920 

1920 

\  Original 

Supplemental 

Total  1920 

Estimates 

&  Deficiency 

Estimates 

?      30,048,786 

$        5,253,300 

$     35,302,086 

1,916,905,572 

243,652,928 

2,160,558,500 

11,042,237 

3,000,000 

14,042,237 

15.928.818 

3.185.828 

19,114,647 

547,237,273 

56,491,262 

630,728,535 

11,939,814 

11,939,814 

116.021817 

4,437,386 

120,459,201 

6,032,863 

12,060 

6,044,923 

2,644,307,046 

2,850,000 

2,647,157,046 

220,050,000 

,     220,050,000 

358,307,577 

358,307,577 

15,870,500 

13,000,000 

28,870,500 

902,231,236 

393,429,072 

1,295,660,309 

6,822,923,539 

725,311,836 

7,548,235,375 

'This  analysis  and  discussion  of  post-war  expenditures  ignores  the  expenditures  for  the 
fiscal  year  1919  although  nearly  eight  months  of  that  period  were  subsequent  to  the  ar- 
mistice. It  was  the  period  of  demobilizing  the  military  and  naval  forces.  It  reflects  in 
large  part  the  needs  and  obligations  of  the  war  period  proper. 

The  disbursements  (including  loans  to  foreign  nations)  for  the  fiscal  year  ending  June 
30,  1919,  was  $18,514,879,955.03.  The  disbursements  from  December,  1918,  to  June,  1919, 
(7  mos.),  were  as  follows: 


Other  than  Loans  to  Foreign  Govts.. 
Loans  to  Foreign  Govts 


Total 


$8,137,387,654 
1,806,320,567 

9,943,708,221 


234 


PERMANENT   ANNUAL    OBLIGATIONS, 

ETC.  (Interest  Charges,  Indefinites) 

MISCELLANEOUS  SPECIAL  ACTS  (In- 
cluding billion  dollar  Wheat  Guaranty  and 
European   Relief)    

DEFICIENCIES  (GENERAL)  (Including 
misc.  civil  items  on  2d  Railroad  Deficiency.. 

DEFICIENCIES   (RAILROAD)i  


1,266,743,759  702,254,021       1,968,997,780 


1,126,478,632       1,126,478,632 


553,470,203 
1,200,000,000 


553,470,203 
1,200,000,000 


GRAND  TOTAL 

DEDUCT  SUPPLEMENTAL  ESTIMATES 
WHICH  DUPLICATED  DISALLOWED 
REQUESTS  IN  ORIGINAL  ESTIMATES.. 


8,089,667,298      4,307,514,692     12,397,181,990 


937,858,723 


3,369,655,969     11,459,323,267 


TOTAL  INDEPENDENT  REQUESTS  OF 
ADMINISTRATION  (Original  and  Sup- 
plemental)-          8,089,667,298 

Requests   Exceed    1916    Expenditures   by   $10,000,000,000. 

This  amount,  requested  by  the  Administration,  is  $10,107,860,391,  or  1362 
per  cent,  more  than  the  actual  disbursements  of  the  Government  for  the  fiscal 
year  1916,  not  including  the  Postal  Service  for  either  year. 

The  distribution  of  this  amount,  by  major  activity  of  the  Government,  is 
shown  in  the  following  table  in  comparison  with  the  amounts,  for  each  activ- 
ity, actually  expended  in  1916.  In  parallel  columns  are  shown  the  amount 
and  per  cent,  of  increase  for  each  activity.  This  comparison  is  visualized  in 
greater  det&il  in  Diagram  No.  1. 

Total  Total  Increase  1920  requests 

Expenditures         Requests       over  1916  expenditures 


Classification 


1916 


Legislation   $     7, 831,241 

General  Administration  88,224,854 

National  Defense 447,616,554 

Public  Services   (Civil) 153,108,836 

Judicial    8,355,939 

Local  Government 13,958.990 

Permanent  Obligations 22,900,313 

Totatl  Ordinary 741, 996,727 

Postal  (payable  out  of  revenues) 306,228,453 

Grand  Total 1,048, 225,180 

Savings  by  Congress. 

The  requests  of  the  Administration  before  enumerated  and  the  appropri- 
ation of  Congress  for  the  fiscal  year  1920  are  as  follows: 

REQUESTS: 

a.  Regular  (original  estimates) $  8,089,667,298 

b.  Supplemental  and  deficiency    (not   included  in  original)  3,369,655,969 


1920 

Amount   Per  Cent 

5    10,376,796 

$    2,545,555 

32 

275,429,903 

187,205,049 

212 

5,792,634,457 

5,345,017,903 

1194 

2,947,133,453 

2,794,024,617 

^1825 

11,850,201 

3,494,262 

42 

20,132,308 

6.173,318 

44 

1;792,300,000 

1,769,399,687 

7727 

10,849,857,118 

10,107,860,391 

1362 

609,466,149 

303,237,696 

99 

11,459,323,267 

10,411,098,087 

993 

TOTAL  REQUESTS $11,459,325,267 

TOTAL  APPROPRIATIONS  7,603,448,579 

DIFFERENCE  BETWEEN  TOTAL  REQUESTS     OF     ADMINISTRATION 

AND  ALLOWANCES  OF  CONGRESS  FOR  1920  $  3,855,874,688 


iThls  estimate  (i.  e..  $1,200,000,000)  was  subm  itted  in  connection  with  the  1920  Railroad  Deficiency 
Appropriation  Act  of  $750,000,000.  The  several  tables  and  diagrams  of  this  report  analyzing  the 
estimates  (requests)  of  the  Administration  for  1920  or  1921  do  not  include  additional  amounts  for 
expenses  growing  out  of  the  Federal  Control  of  Railroads  except  in  the  Diagram  on  page  241,  where 
the  expenditures  for  1920  are  compared  with  the  Administration's  requests  (estimates)  for  1921  in  such 
a  way  as  to  show  the  significance  of  the  costs  of  the  War  and  Emergency  activities  of  the  government 
for  each  of  those  two  years.     (See  Diagram  No.  4). 

Furthermore,  the  tables  and  diagrams  analyzing  the  appropriations  of  Congress  for  1920  or  1921 
include,  in  reference  to  the  federal  control  of  transportation  only  the  main  deficiency  appropriation  of 
1750,000,000  and  the  later  provision  of  $200,000,000  in  the  Cummins-Esch  Bill  of  February  28  (transfer- 
ring the  roads  to  private  control).     Both  of  these  amounts   have   been   expended. 

Additional  appropriations  of  $825,000,000  have  been  made  available  for  expenses  growing  out  of  Fed- 
eral control,  $52.5,000,000  of  which,  including  the  "indefinite  appropriation"  estimated  at  $225,000,000,  was 
appropriated  in  the  Cummins-Esch  Bill,  and  $300,000,000  of  which  was  appropriated  in  the  1920  De- 
ficiency Act  of  May  8th,  1920. 

2Data    as    to    estimates,    appropriations,    etc.,    compiled  up  to  May  20,  1920. 


235 


S?      g!3 


ifel 

h-    •*   00 

5^  !^^S 

o  S  5 

^  ^  ? 

«feS 

^^■^' 

O 


X 

is 


g  2  § 


III i^^^ii 


In  other  words,  the  Congress  which  participated  in  the  original  as  well 
as  the  supplemental  1920  appropriations,  made  reductions  or  cuts  in  the  esti- 
mates to  the  extent  of  36  per  cent,  of  the  total  amount  requested.  The  distri- 
bution of  this  saving  by  major  activity  is  shown  in  Diagram  No.  2. 


IttlJlMlON  (#10^76,796) 


ADniNISTRATION'S 

REQUESTS 

(ESnMATES) 

AND 

ArrRoriMATiow^ 
or 

CONGRESS 
1920 


IHTIWM.  DtrtNX 


JUDICIAL  (*II,850,MO 

IflWl  GOVWNUCNT  (»Z0il5a,3O8) 


rOtmNDIT  OSUWT\0NS 


TOTAL  («DinW  .        «|0M385/|18  »«.993,?82,430      #3,855,874,688    ^ 

M/ifiMn  No.2  mm  kcmmd  in  mm  mwm  w  (.mm  (aAiotQunDfR  AWiiHiswinoio  cnfMracoNanAi  AhosumniDflADFORiszo 


This  reduction  reflects  the  effort  of  Congress  to  force  a  retrenchment  pro- 
gram on  the  Administration,  terminate  unnecessary  activities,  and  readjust 
Government  operations  to  a  peace  basis. 


237 


FAILURE  TO  TERMINATE  EMERGENCY  ACTIVITIES  AND  WAR  WORK 
EXPLAINS  HIGH  COSTS. 

The  present  high  cost  of  the  government  reflects  the  failure  of  the  Admin- 
istration to  terminate  special  work  and  activities  undertaken  under  the  im- 
petus or  need  of  war. 

The  inertia  of  the  Administration  with  respect  to  reconstruction  and  re- 
trenchment problems  is  forcibly  summed  up  by  Hon.  Joseph  Fordney,  Chair- 
man of  the  Ways  and  Means  Committee,  before  Congress,  April  10,  1920. 

He  says: 

"Real  and  permanent  improvement  in  the  condition  of  the  Treasury  can  * 
come  only  from  economical  administration.  The  American  people  had 
hoped  that  the  current  fiscal  year  1920  would  witness  a  substantial  return 
to  pre-war  conditions  and  pre-war  expenditures.  With  the  signing  of  the 
armistice  Congress  expected  that  the  administration  would  submit  a  defin- 
ite program  of  retrenchment  and  readjustment  in  connection  with  its 
estimates,  then  about  to  be  transmitted,  for  the  fiscal  year  1920. 

*Tn  the  light  of  requests  for  appropriations  for  1920,  calling  for  $11,000, 
000,000 — 98  per  cent  of  which  came  from  the  administration — the  taxpayer 
might  well  ask :  'What  is  the  post-war  expenditure  policy  of  the  present 
administration  V 

"For  months  the  65th  and  66th  Congresses  struggled  in  1919  with  the 
original  estimates  which,  in  large  part,  were  guess  work — and  officials 
from  the  departments  admitted  that  hundreds  of  the  guesses  were  wrong 
— to  determine  what  the  administration's  expenditure  policy  contem- 
plated. Information  was  not  submitted  with  the  estimates.  Shifting  from 
a  War  to  a  peace  basis  is  largely  an  administration  problem.  It  was  nec- 
essary for  the  several  appropriation  committees  to  develop  this  informa- 
V      tion,  through  hearings,  investigations,  and  independent  analysis." 

War  Division  and  Scattering  of  Authority  Continued  into  Peace  Period. 

At  the  outbreak  of  the  war  the  public  service  was  conducted  almost  wholly 
by  cabinet  officers.  Of  the  $1,072,894  093  expended  in  1916  all  but  $75,898,- 
491  was  expended  by  the  regular  executive  departments. 

In  organizing  on  the  war-basis  nineteen  new  boards,  commissions  and 
agencies  of  a  primary  nature  were  created  outside  regular  departments,  the  total 
expenditure  of  which  during  the  fiscal  year  ending  June  30,  1919,  amounted 
to  $2,723,526,540.  This  does  not  include  the  various  advisory  and  investigative 
agencies  such  as  the  Board  of  Railroad  Wages  and  Working  Conditions,  which 
were  established  for  war  purposes  and  assigned  as  units  to  the  regular  or  new 
establishments.  In  other  words,  the  President  under  his  war  powers  built  up 
a  new  group  of  departments  which  had  a  personnel,  and  operated  at  a  cost, 
larger  than  all  regularly  constituted  departments  outside  of  the  army  and 
navy.  He  really  had  two  Cabinets — the  old  Cabinet  devoted  to  the  perform- 
ances of  peacetime  functions  and  the  war  Cabinet  devoted  to  the  conduct  of  the 
war. 

This  organization  as  reflected  in  the  expenditures  for  the  fiscal  year  1919 
is  shown  in  the  following  table  in  relation  to  the  peace  organization  and  ex- 
penditures of  1916 : 

238 


PEACE  ACTIVITIES  I&I6  1919 

(a)  Executive    Proper $       374,035  $    8,250,416 

(b)  Departments  

1.  State    . —              .  6,444,594  20,248,594 

2.  Treasury  73,737,018  289,702,009 

3.  Justice    (Including   Judicial)  10,662,463  15,216,025 

4.  Post  Office  (Self-supporting) 

a.  Deficiencies    7,270,710  2,405,945 

b.  Appropriations 306,228,453  362,504,274 

5.  Interior  (Including  Pensions  and  Indian  Service)  201,681,259  285,328,900 

6.  Agriculture  28,031,540  36,888,371 

7.  Commerce 11,403,722  15,668,534 

8.  Labor    „ 3,531,144  13,290,491 

(c)  Independent  Agencies 

1.  Interstate   Commerce   Commission 5,016,136  5,6818,652 

2.  Federal   Reserve  Board                    .            '  821,763  2,331,760 

3.  Federal   Trade   Commission  369,950  1,595,737 

4.  Civil  Service  Commission  347,181  715,954 

5.  Bureau  of  Efficiency..                                                _  12,537  104,555 

6.  U.  S.  Tariff  Commission                                          _  199,578 

7.  Other  Minor  Independent  Agencies  991,527  2,828,074 


TOTAL .  „     .    $656,924,032  $1,062,967,869 

Less  war  expenditures  under  "National  Security 

and  Defense"  appropriation 30,729,552 


NET  TOTAL   PEACE   ACTIVITIES    $656,924,032  $1,032,238,317 

II    WAR  ACTIVITIES 

(a)  Departments 

1.  War    184,357,281  9,285,497,663 

2.  Navy    ........_ „      155,883,195  2,019,045,767 

(b)  Independent  Agencies 

1.  Emergency  Shipping  Fund „ 1,865,715,419 

2.  Railroad  Administration  „  349,238,385 

3.  War   Finance   Corporation 295,000,000 

4.  Food  and  Fuel  Administrations •  117,644,584 

5.  Bureau  of  Industrial 

Housing  and  Transportation 70,483,879 

6.  War  Trade  Board....„ „ 6,369,672 

7.  U.  S.   Shipping  Board 5,486,158 

8.  Board  of  Vocational  Education 3,549,443 

9.  Committee  on  Public  Information 2,739,342 

10.  War  Industries  Board 1,939,142 

11.  Interdepartmental  Social 

Hygiene  Board „..„ : 1,720,123 

12.  U.  S.  Employees  Compensation  Commission 1,536,435 

13.  Alien   Property   Custodian 1,179,018 

14.  Council  of  National  Defense - 554,039 

15.  Advisory  Committee  on  Aeronautics „ 228,498 

16.  Capital  Issues  Committee 142,403 


TOTAL  ^ $340,240,476  14,028,059,970 

(c)  Collateral  Aid  of  Civil 

Departments  (National  Security  and  Defense)  30,729,552 


NET  TOTAL  WAR  ACTIVITIES $340,240,476  14,058,789,522 


GRAND  TOTAL $997,164,508  15,091,027,839 


239 


HOW  AUTHORITY  WAS  DIFfUSCD  AND  5CATTLRCD  DURING  WAR  AND  RECONSTRUQION  TLRIODS 


WAR  AQIYITIES 


rtACt  ACTIVITIES 

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This  elaborate  organization,  developed  by  the  President  under  the  war 
powers  conferred  by  Congress,  explains  much  of  the  waste  and  extravagant  ex- 
penditure which  exist  today.  The  organization,  as  it  functioned  during  the 
stress  of  war,  was  inherently  wasteful  because  of  the  scattering  of  authority 
through  many  new  channels,  the  confusion,  overlapping  and  conflicts  of  juris- 
diction. This  diffused  system  of  administration  exists  today,  with  the  waste 
multiplied  because  of  the  inertia  in  matters  of  retrenchment. 

The  extent  of  this  war  hangover  is  revealed  in  the  following  table  show- 
ing the  expenditures  of  (a)  war  activities,  (b)  fixed  charges,  interest  on  the 
public  debt  and  other  payments  growing  out  of  present  and  past  wars,  and  (c) 
peace  activities  for  the  fiscal  year  1920  in  relation  to  the  requests  of  the 
Administration  for  each  of  these  factors  for  1921 : 

Amount  Per  cent,  of  Total 

1920  1921  1920  1921 

War  and  emergency  activities...     $4,756,204,437  $3,336,641,713  67  59.74 

Fixed  charges,  etc 1,774,930,000  1,520,030,000  25  22.22 

Total  -• 6,531,134,437  4,856,671,713  92  86.96 

Peace   Activities   567,244,347  728,043,409  8  13,04 

Total    7,098,378,784  5,584,715,122  100  100 

(See  Diagram  entitled  "War  Hangover  of  1920  and  1921,"  page  241,  following.) 

Inertia  on  the  part  of  the  Administration  in  sloughing  off  the  incubus  of 
war  boards  and  agencies  during  the  sixteen  months  following  the  Armistice 
has  led  to  an  effort  on  the  part  of  Congress  to  force  economy.  In  other  words, 
initiative  in  retrenchment  has  shifted  from  the  Executive  branch,  where  it 
properly  belongs,  to  Congress.' 

For  example,  the  Bureau  of  Efficiencyi,  an  agency  of  the  Federal  Govern- 

'See  table  on  page  10,  showing  the  amounts,  aggregating  $3,854,495,290,  which  Congress 
disapproved  in  the  estimates  submitted  by  the  Administration  for  1920. 

240 


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241 


•ment  charged  with  the  investigation  and  reporting  upon  matters  of  econ- 
omy and  efficiency,  recommended,  in  1919,  the  consolidation  of  the  emergency 
Divisions  of  Storage  and  Purchase  which  were  operated  as  separate  Divisions 
of  the  Office  of  the  Quartermaster  General.  Consolidation  would  lead — accord- 
ing to  its  report— to  an  estimated  saving  of  $5,000,000.  The  General  Staff 
failed  to  approve  the  recommendation  and  the  War  Department  refused  to  act, 
although  the  present  Quartermaster  General  concurred  fully  in  the  view  that 
the  consolidation  of  these  bureaus,  having  a  large  personnel  both  in  Washing- 
ton and  in  the  field,  would  result  in  large  economy  and  increased  efficiency.^ 

Further  investigations  by  the  Bureau  of  Efficiency  were  made,  and  the 
original  recommendations  were  reiterated;  but  the  General  Staff  still  refused 
to  act.  The  matter  later  became  the  subject  of  hearings  before  Congress  in 
connection  with  the  annual  estimates  for  1921.  A  review  of  the  discussior.s 
there  revealed  clearly  the  desirability  of  this  change  and  the  economy  involved. 
And  through  the  initiative  of  Congress  this  economy  is  now  probable. 

Lack  of  an  Expenditure  Policy  for  1920  and  19  21;  Budget  Information  Not  Available. 

The  lack  of  a  working  plan  for  shifting  from  a  war  to  a  peace  basis  is  re- 
flected in  the  failure  of  the  administrati  on  to  formulate  and  present  to  Congr*^ss 
a  fiscal  policy  for  1920  and  1921  whic.i  includes  or  furnishes  a  definite  basis  for 
developing  a  program  of  economy. 

A  picture  of  the  original  estimates  for  the  fiscal  year  1920  is  pertinent 
here.  These  estimates  called  for  $8,089,667,298.  They  were  transmitted  to 
Congress,  December  18,  1918,  or  a  month  and  seven  days  after  the  armistice. 

Analysis  of  the  detailed  schedules  shows  that  the  estimates  furnish  in  no 
sense  a  statement  of  definite  expenditure  policy ;  indeed  they  fail  to  furnish 
pertinent  comparative  information  as  to  expenditures  of  pre-war  periods. 

The  Administration  makes  no  claim  that  the  estimates  for  the  fiscal  year 
1920  were  predicated  on  a  program  of  retrenchment.  Investigation  shows  the 
bureau  heads  had  not  been  informed  by  the  responsible  department  officials  of 
definite  limitations  within  which  their  request  should  be  confined. 

Picture  of  the  Regular  Annual  Estimate  of  Appropriation. 

In  form,  and  in  substance,  the  estimates  consist  of  a  "compilation  of 
departmental  requests"  without  reductions,  explanations  of  increases,  or  com- 
parisons pointing  toward  economy.  Their  submission  followed -the  formal  and 
casual  methods  of  submitting  requests  which  had  been  universally  condemned. 

The  information  tabulated  in  the  Book  of  Estimates  (and  distributed 
through  the  volume  of  1093  printed  pages)  fails  to  furnish  the  legislator,  ad- 


'William  R.  Wood,  Chairman  of  the  Sub-committee  (in  charge  of  the  Legislative, 
Executive  and  Judicial  Appropriation  Bill),  in  defending  the  action  of  his  sub-committee  in 
providing  for  the  consolidation  of  these  unit  s  said  that  it  was  for  the  purpose  of  enabling 
"this  department  (namely  the  Quartermaster  General's  Office)  for  the  fiscal  year  1921  to 
reduce  at  least  30  per  cent,  of  the  employes  now  engaged  therein." 

He  added:  "It  will  result  (by  reason  of  this  consolidation)  in  the  removal  of  those 
officers  who  are  now  engaged  in  duplicating  work.  It  will  result  not  only  in  that  but  it 
will  eliminate  innumerable  delays  and  inefficiency.  Very  full  hearings  were  had  on  this  sub- 
ject and  not  only  is  it  the  opinion  of  the  Quartermaster  General  that  this  reduction  may 
be  made  if  this  consolidation  is  had  but  it  is  likev/ise  the  opinion  of  the  Inspector  General 
and  the  opinion  of  the  experts  who  are  in  a  position  to  know  the  possibility  of  that  reduction; 
and  they  all  agree  with  the  report  of  the  Bureau  of  Efficiency  •  that  it  will  result  in  a 
saving  of  many  millions  of  dollars  to  the  Government  of  the  United  States."  (Congressional 
Record,  February  26,  1920.) 

242 


ministrator,,or  student  of  Government  any  genuine  basis  for  intelligent  think- 
ing as  to  the  administrative  program  proposed. 

WitJi  respect  to  the  information  furnished  in  the  Book  of  Estimates,  the 
following  is  noted : 

1.  The  1920  estimates  are  sometimes  in  detail;  sometimes  in  general 
terms. 

2.  In  parallel  columns  are  furnished  the  1919  appropriations    (a  war 
period) ;  generally  the  1919  appropriations  are  not  detailed. 

3.  In  some  instances  the  1918  expenditures    (partially  a  war  period) 
are  given. 

4.  Comparisons  with  1916  or  1917  (peace  periods)  are  not  furnished. 

5.  For  many  items,  the  amounts  requested  for  1920  exceed  appropria.- 
tions  for  1916  or  1917  by  five-hundred  per  cent;  in  some  cases,  one-thousand 
per  cent.    No  explanations  of  such  increases  appear  in  the  estimates. 
The  failure  of  the  Administration  to  submit  a  concrete  expenditure  policy 

for  the  fiscal  years  1920  and  1921  has  been  the  subject  to  intense  and  earnest 
debate  and  criticism  on  the  floor  of  Congress  since  January,  1919.  The  65th 
Congress  (Democratic)  was  confronted  with  the  same  difficulties  as  the  66th 
Congress  (Republican)  which  began  March  4,  1919. 

However,  despite  the  failure  to  introduce  a  formal  budget  procedure,  sci- 
entific budget  information  predicated  on  a  plan  of  retrenchment  could  have  been 
assembled  by  the  administration  and  presented  as  part  of  the  annual  esti- 
mates for  the  fiscal  year  1920,  and  for  the  fiscal  year  1921.  This  would  have 
enabled  the  65th  and  66th  Congresses  effectively  and  quickly  to  consider  the 
retrenchment  problems  for  each  of  these  years. 


THE  ADMINISTRATION'S  EXPENDITURE  PROGRAM  FOR  1921 
COMPARED  WITH  THE  PRE-WAR  EXPENDITURES. 

The  following  is  a  summary  statement,  under  Appropriation  Bill  titles,  of 
the  original  requests  of  the  Administration  for  appropriations  to  finance  the 
fiscal  year  1921: 

The  Requests   (Estimates)  of  the  Administration  for  1921. 

Estimates  Fiscal  Year  1921 


Appropriation  Bill 

Regular 

Supplemental 

Total 

Agriculture 

$      37,528,102 

$      10,169,756 

$      47,697,858 

Army  

982,800,020 

322,200 

983,122,220 

Diplomatic  and  Consular 

11,243,251 

11,243,251 

District  of  Columbia 

19,179,716  • 

1,249,613 

20,429,329 

Fortifications    

117,793,330 

134,000 

117,927,330 

Indian  

12,994,494 

12,994,494 

Legislative,  Executive  and  Judicial 

122,291,395 

201,990 

122,493,385 

Military  Academy 

6,778,637 

6,778,637 

Navy  

573,131,255 

9,500,000 

582,631,255 

Pensions  

215,030,000 

215,030,000 

Post  Office  

391,713,673 

75,783,900 

467,497,573 

Rivers  and  Harbors 

42,841,565 

42,841,565 

Sundry  Civil 

906,576,841 

130,880,290 

1,037,457,131 

Total  regular  ... 

3,439,902,279 

228,241,749 

3,668,144,028 

Permanent  Annual 

1,425,407,752 

150,300,000 

1,575,707,752 

Total  regular  and  permanent  Annual 

4,865,310,031 

378,541,749 

5,243,851,780 

Deficiency 



33,360,540 

33,360,540 

Grand  Total 

.    .  $4,865,310,031 

$411,902,2881 

$5,277,212,320 

'1921  estimates  for  expenses  growing  out  of  Federal  Control  over  railroads  are  omitted. 
(See  footnote,  page  235.) 

243 


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244 


These  estimates — representing  the  Administration's  proposed  expendit- 
ures for  1921  (exclusive  of  Railroad  Deficiencies  for  1921)  are,  in  total,  $2,- 
326,236,259  less  than  the  total  appropriations,  up  to  May  20th,  for  the  fiscal 
year  1920.  However,  the  appropriations  for  1920  include  three  substantial 
appropriation  items  for  which  there  are  no  comparable  amounts  in  the  above 
estimates.    These  are  as  follows: 

Wheat  Guaranty $1,000,000,000 

European  Relief ." 100,000,000 

Railroad  Deficiency  (2  appropriations) 950,000,000 

Total    $2,050,000,000 

Eliminating  these  items  from  considerations,  the  estimates  for  the  fiscal 
year  1921  give  little  promise  by  the  Administration  of  reductions  of  expendi- 
tures in  1921  below  the  appropriations  (and  expenditure)  for  1920. 

Analysis  reveals  that  requests  for  1921  under  forty  majo%  items  of  esti- 
mates exceed  appropriations  for  1920 — the  excess  amounting  to  $989,- 
715,687.  Requests  for  1921,  under  twelve  other  major  items  of  the  estimates 
were  less  than  the  appropriations  for  1920.  The  decrease  on  these  items  was 
$505,531,709.  Reference  here  is  made  to  significant  major  items.  See  dia- 
gram No.  6. 

How  do  the  estimates  for  1921  compare  with  the  expenditures  for  1916? 
The  similarity  between  the  1920  appropriations  and  the  estimates  for  1921  in 
itself  indicates  that  the  same  general  disparity  (between  the  1920  and  the  pre- 
war expenditures)  would  be  projected,  under  the  current  estimates,  into  the 
next  year. 


245 


Comparison   of  Administration's  Requests,   1921,  with  Expenditures  1916. 

The  following  table  furnishes  in  detail  a  comparison,  by  functions,  of  the 
amounts  actually  disbursed  in  1916,  with  the  amount  which  the  Wilson 
Administration  requested  for  1921  in  the  original  and  supplemental  estimates 
submitted  up  to  April  15,  1920.  In  parallel  columns  are  shown  the  amount  and 
percentage  of  increase  for  each  activity. 


1916 
Activities  or  Functions        Expenditures 

Legislative    $  7,831,241 

General  Administration 

Executive  Direction  and  Con- 
trol ..„ 17,078,295 

Administration  of  Finance 49,559,023 

Construction     and     mainte- 
nance, land  and  bldgs 21,587,536 

National  Defense 

By  Land  (Army) 124,136,083 

By  Sea  (Navy) 155,029,425 

By  Air  _ 

Cooperation  of  Civil  Agencies  

Past  Wars  (pensions,  etc.) 168,451,046 

Public  Services  (Civil) 

Transportation  73,000,987 


Agriculture 

Trading,  Mining  and  Mfg. 

Foreign  Intercourse  

Education   

Indians    

Labor  

Health 


Postal  (Deficiency)  

Immigration  and  Naturaliza- 
tion      

Judicial    

Local  Government   (Inc.  Dist.  of 

Columbia )   

Permanent  Obligations  22,900,313 


26,826,094 

4,697,098 

5,912,019 

12,487,749 

17,885,452 

432,419 

3,429,349 

5,500,362 

2,937,307 
8,355,939 

13,958,990 


1921 
Estimates 

8,466,758 


76,200,015 
87,801,245 

33,517,565 

1,072,534,583 

551,567,915 

95,437,000 

15,561,782 

589,143,905 

600,110,504 
72,179,167 
13,314,340 
12,134,345 
25,817,198 
37,090,284 
1,873,330 
16,460,511 


5,717,250 
12,891,131 

26,595,919 
1,305,000,000 


Total  Ordinary 


$741,996,727         $4,659,414,747 


Postal  (Payable  out  of  revenue)...     306,228,453 
Special  Disbursements  24,668,913 


Grand  Total  $1,072,894,093 


467,497,573 
150,300,000 

$5,277,212,320 


Increase  1921  over  1916 
Amount      Per  Cent 

$  635,517  8 


59,121,720 
38,242,222 

11,930,029 

948,398,500 
396,538,490 


527,109,517 

45,353,073 

8,617,242 

6,222,326 

13,329,449 

19,204,832 

1,440,911 

13,031,162 


2,779,943 
4,535,192 


346 

77 


55 


764 
256 


420,692,859    250 


722 
169 
183 
105 
107 
107 
333 
380 


12,636,929 
1,282,099,687 

90 

5588 

$3,917,418,020 

528 

161,269,120 
125,631,087 

53 
509 

$4,204,318,227 

392 

THE  PRESENT  AND  PRE-WAR  PAYROLL  OF  THE  FEDERAL 

GOVERNMENT. 

Employment  Conditions  in  the  Federal   Service  in  1920 

Payroll  cost  represents  a  substantial  factor  of  the  total  costs  of  any  enter- 
prise. Before  the  war  the  annual  payroll  costs  of  the  Federal  Government 
aggregated  40  per  cent  of  the  total  costs.  The  number  of  federal  officials  and 
employees  necessarily  points  to  the  trend  of  net  operating  cost. 

Numerous  charges  from  within,  as  well  as  outside,  official  circles  have 
been  made  to  the  effect  that  unnecessary  employees  in  large  number  are  con- 
tinued on  the  federal  payroll;  that  the  present  "padded"  payroll  is  a  serious 
obstacle  to  economy  or  retrenchment. 

The  Government's  employees  at  Washington,  January  31,  1920,  aggregated 
100,110,  in  addition  to  the  commissioned  and  non-commissioned  personnel  of  the 
army  and  navy.    Of  this  army  of  civil  servants,  the  Chief  of  the  Federal  Bureau 


247 


of  Efficiency  (Mr.  Herbert  D.  Brown),  made  the  following  statement  in  an  of- 
ficial statement  published  in  the  Congressional  Record  of  March  5,  1920 : 

"I  know  that  there  are  a  great  many  unnecessary  clerks  in  Washing- 
ton— (literally  thousands)." 

He  adds: 

"I  know  that  there  are  very  many  superfluous  clerks  in  Washington, 
because  investigations  made  by  the  Bureau  of  Efficiency  in  certain  offices 
have  disclosed  this  fact.  Whether  this  condition  is  general  throughout 
the  departments  I  am  not  prepared  to  say  without  making  a  comprehen- 
sive survey  of  the  whole  service." 

This  was  not  the  casual  remark  of  an  "outsider,,"  not  the  comment  of  a 
hostile  critic.  This  statement  represented  the  mature  judgment  of  the  head  of 
an  official  agency  of  the  Government — the  only  agency  of  the  Government 
which  is  charged  with  general  investigation  of  conditions  of  departmental  effi- 
ciency and  employment  and  the  making  of  official  reports  as  to  opportunities  for 
economy.  Mr.  Brown  is  an  appointee  of  the  President.  As  head  of  this  Bureau, 
and  previous  to  its  creation,  he  had  served  both  Democratic  and  Republican 
administrations.  The  Bureau  itself — ^which  is  in  no  way  influenced  by  partisan 
politics — was  established  by  the  Democratic  administration  in  1913.  It  has 
been  continuously  engaged  since  with  a  corps  of  experts  in  making  efficiency 
studies.  ,  . 

Confusion  in  Federal  Employment  Conditions  Bordering  on  Chaos. 

Published  official  reports  of  investigations,  statements  of  members  of  the 
Federal  Civil  Service  Commission  in  Congressional  hearings,  the  testimony  of 
responsible  officials  of  the  Federal  Government — all  confirm  the  testimony  of 
the  Chief  of  the  Bureau  of  Efficiency.  Indeed,  these  reports  describe  con- 
ditions of  confusion,  idle  employees  and  waste  in  the  several  departments  and 
offices  at  Washington  which  descend  at  times  to  chaos. 

A  comprehensive  investigation  of  employment  conditions  of  the  Federal 
Government,  with  particular  reference  to  Washington,  D.  C,  was  authorized 
by  the  Democratic  Congress  by  an  Act  approved  March  1,  1919.  This  inves- 
tigation was  conducted  by  the  Congressional  Joint  Commission  on  Reclassifica- 
tion of  Salaries.  The  Commission  with  a  staff  of  experts  occupied  a  year  in 
intensive  research. 

On  the  subject  of  its  12th  Finding,  the  report  readsr  in  part: 

"The  Commission  finds  that  there  is  serious  discontent,  accompanied 
by  an  excessive  turnover  and  loss,  among  the  best  trained  and  most  effi- 
cient employees ;  that  the  morale  of  the  personnel  has  been  impaired ;  that 
the  national  service  has  become  unattractive  to  a  desirable  type  of  tech- 
nical employee;  and  that  the  Government  has  put  itself  in  the  position  of 
wasting  funds  on  the  one  hand  and  doing  serious  injustice  to  individuals  on 
the  other."  •^^. .  \ 

Vice-President  Marshall,  in  his  much  discussed  letter  outlining  a  platform 
alleged  to  be  in  certain  respects  "so  different  from  many  of  the  programs  recently 
outlined  for  the  Democratic  party  of  1920,"  directs  attention  to  the  unnecessary 
officials  and  agents  on  the  payroll  from  the  war  down  to  the  present  time.  He 
would  commit  the  Democratic  party  to  elect  an  executive  "pledged  to  discharge 

248 


the  countless  officials  and  innumerable  agents  made  necessary  by  the  war  and 
to  administer  public  affairs  along  economic  lines."  This  is  one  of  the  primary 
points  which  he  believes  the  Democratic  party  should  stand  for. 

By  necessary  inference  this  letter  reveals  apparent  disagreement  between 
the  President  and  the  Vice-President  in  reference  to  present  extravagances  in 
the  handling  of  the  government's  payroll. 

Despite  the  existence  of  these  conditions,  little  retrenchment  has  been  ac- 
complished in  the  payroll  cost  of  the  administration  and  clerical  staff.  Star- 
tling as  the  statement  may  seem  the  number  of  employees  at  Washington  has 
been  reduced  but  little  during  the  sixteen  months  immediately  following  the 
armistice.  The  following  statement  showing  the  number  of  employees  at  the 
time  of  the  armistice  and  at  significant  dates  tells  its  own  story. 

April  1,  1917  (beginning  of  war) 37,908  employees 

November  11,,  1918  (armistice) ..„ 117,454 

July  1,  1919 _ :....: 102,126 

September  20,  1919 „ 102,766 

October  31,  1919 10^,111 

January  31,  1920 _ _ ,. - „ 100,110 

March  31,  1920  (16  months  after  armistice) 96,266 

Thus  the  employees  on  the  Federal  payroll  in  Washington  at  the  time 
of  the  armistice  were  more  than  three  times  the  number  on  the  payroll,  at  the 
commencement  of  the  war. 

From  a  total  enrollment  of  117,454  at  the  time  of  the  armistice  the  Wash- 
ington force  was  decreased  by  but  17,344,  slightly  less  than  15  per  cent,  up  to 
January  31,  1920.  -^^-.. ....-...--       •        - 

The  variations  in  the  enrollment  of  employees  at  Washington  from  year  to 
year  during  the  period  from  1905  to  1917  (a  12  year  pre-war  period),  the  varia- 
tion during  the  war  period  proper,  the  variation  during  the  months  immedi- 
ately following  the  armistice  and  the  monthly  variations  since  October  30, 
1919,  are  visualized  in  the  following  diagram.  (See  diagram  No.  7,  entitled 
"Enrollment  of  Federal  Employees  at  Washington,  D.  C") 

Armistice  and  January  31,  1920,  Compared. 

Equally  illuminating  is  the  comparison  of  the  number  of  employees  on  the 
payroll  January  31, 1920,  with  the  number  on  the  payroll  November  11,  1918, 
the  date  of  the  armistice.  The  net  decrease  between  these  two  dates — repre- 
senting approximately  15  months— is  17,344.  It  will  be  noticed,  however,  that 
with  the  exceptions  of  the  War  and  Navy  Departments  (which  record  a 
decrease  of  19,518  employees  from  a  total  at  the  time  of  the  armistice  of 
49,906  civil  employees)  the  main  departments  of  the  government  reflect  an 
increase  in  the  total  number  of  employees  since  the  armistice.  Striking  among 
the  increases  are  the  following: 

Department  of  State ....._ From  686  to  789 

Department  of  Treasury From  29,342  to  37,444 

Post  Office  Department From  2,396  to  3,463 

Department  of  the  Interior From  5,361  to  5,957 

Department  of  Commerce „ From  2,298  to  2,583 

U.  S.  Shipping  Board From  1,227  to  1,911 

Kailroad  Administration From  1,163  to  1,395              • 

249 


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260 


Not  including  the  War  and  Navy  Departments,  the  executive  departments 
and  other  establishments  at  Washington  record  an  increase  subsequent  to  the 
armistice  down  to  January  31,  1920,  of  2,184  employees. 

The  appropriation  bills  as  summarized  in  the  official  volume  known  as 
"Appropriations,,  New  Offices,"  etc.,  for  the  fiscal  year  1920,  in  Senate  Document 
456,  show  that  on  the  basis  of  the  Administration  requests  the  65th  and  66th 
Congresses  created  for  the  succeeding  fiscal  year  (outside  of  the  Navy  Depart- 
ment) 12,514  positions,  and  abolished  1 1,249  positions.  This  was  a  net  increase 
of  1,265  positions,  involving  a  net  increase  in  the  appropriation  for  payroll 
cost  of  $632,044  for  the  fiscal  year  1920  over  the  fiscal  year  1919. 

The  detail  by  departments  of  the  new  offices  created  and  the  old  offices  abol- 
ished is  furnished  in  the  following  table. 

SUMMARY  OF  NEW  POSITIONS  CREATED  AND  OLD  POSITIONS  ABOLISHED  IN  THE 
EXECUTIVE  DEPARTMENTS  1920. 


Department 
Executive 
State  , 
Treasury  „_ 

War  

Navy  

Interior  

Post  Office 
Justice 
Agriculture 
Commerce  .... 

Labor  

Judicial  


Independent  Agencies: 
Civil  Service  Commission 
State,    War    and    Navy 

Building   

Employees*      Compensa- 
tion Com.  

Lincoln    Memorial    Com- 


Positions 

Positions 

Created 

Abolished 

Increase 

1 

- 

1 

61 

9 

52 

2,173 

251 

1,922 

32 

3,523 

53 

3 

50 

86 

138 

7,936 

5,640 

2,296 

7 



7 

1,096 

656 

440 

205 

11 

194 

36 



36 

10 

— 

10 

1 

— 

1 

618 

964 

22 

3 

19 

3 



3 

Decrease 


3,491 


52 


346 


Arlington  Memorial,  Am- 
phitheatre and  Chapel 
Government  Printing  Of- 

District  of  Columbia 


162 


5 
115 


Increase 

in  Salaries 

$1,800 

221,640 

2,294,280 

26,120 

60,824 

88,820 

8,208,890 

14,500 

933,600 

357,910 

64,360 

39,900 

2,000 

475,820 

33,500 

2,580 

2,580 

13,200 
182,270 


Decrease 
in  Salaries 


$40,700 
263,440 

4,425,890 

1,860 

142,800 

6,586,690 

391,390 
26.780 


464,330 
5,720 


5,000 
37,950 


Total  (excluding  Navy 
and  Marine  Corps)..     12,514      11,249 


1,265 


$13,024,594       $12,392,550 


Total  Enrollment  of  Employees 

It  is  an  interesting  commentary  that  the  Federal  Government  with  "thou- 
sands of  unnecessary  employees"  has  not  kept,  and  is  not  now  in  possession 
of,  exact  or  adequate  information  concerning  the  vast  army  of  employees 
on  its  payroll.  The  lack  of  such  information  is  indicative  of  the  confused 
condition  and  lack  of  control  -wrhich  obtains.  Learning  of  this  condition  Con- 
gress, through  its  Appropriations  Committees,  requested  that  such  information 
be  prepared.  As  a  result  of  such  requests  and  further  independent  study,  some 
of  the  statistics  herein  presented  were  procured. 

Reliable  estimates  compiled  by  the  Bureau  of  Efficiency  on  the  basis  of 
special  reports  furnished  by  the  Executive  Departments  and  establishments 
show  that  there  were  734,761  officials  and  employees  on  the  civil  payroll  •bf 
the  Federal  government  on  March  31,  1920,  as  against  811,078  on  November 
11,  1918 — the  day  of  the  Armistice. 


251 


Field 

Total 

390,563 

420,752 

409,931 

422,475 

427,575 

465,483 

694,278 

811,078 

675,538 

776,178 

638,498 

734,761 

Thus,  the  civil  force  has  been  reduced  but  9.4  per  cent  in  the  first  15 
months  of  our  reconstruction  period. 

The  following  table  showing  the  changes  in  the  enrollment  of  civil  em- 
ployees in  Washington  and  in  the  field  office  at  significant  dates  since  1913 
is  particularly  illuminating : 

District  of 
Date  Columbia 

June  30,  1913  30,189 

June  30,  1916  32,544 

April  6,  1917  37,908 

Nov.  11,  1918  116,800 

June  30,  1919  100,640 

March  31,  1920  96,266 

In  discussing  a  request  for  $200,000  for  "additional  employees"  of  the  Civil 
Service  Commission  to  do  "clean-up  and  reconstruction"  work,  a  picture  of  the 
chaos  and  confusion  which  existed — and  still  survives — was  presented. 

Mr.  Wood,  Chairman  of  the  Sub-committee  on  the  Legislative,  Executive 
and  Judicial  Bill,  asked  Commissioner  Wales,  of  the  Civil  Service  Commission, 
for  a  statement  "a  little  more  in  detail  about  the  clean-up  you  are  going  to 
make  not  only  in  your  department  but  in  other  departments.  We  are  inter- 
ested in  that."    Commissioner  Wales  replied: 

"By  clean-up  I  mean  this  reconstruction.  During  the  war,  of  course, 
in  every  department  and  in  our  office  it  was  simply  a  question  of  boring  a 
hole  through  which  you  could  see  some  daylight  in  order  to  keep  things 
moving,  and  on  each  side  we  have  banked  up  matters  of  record  which  could 
wait ;  the  departments  have  not  gotten  out  of  it  and  we  have  not  gotten  out 
of  it,  and  every  bit  of  delay  on  their  part  is  reflected  in  our  office.  As  I  have 
stated  before,  it  will  take  us  about  12  months  to  get  back  to  normal  after 
the  departments  have  finished  all  their  clean-up  and  made  their  report  to 
us,  because  we  come  in  last ;  we  take  over  that  work  last  and  keep  the 
records  up  to  date,  but  we  are  behind." 

Comparison  of  Payroll  Costs  in  1920  and  1921. 

Estimates  furnished  by  officials  of  the  government  in  connection  with  hear- 
ings in  Congress  on  the  Appropriation  Bills  for  the  fiscal  year  ending  June  30, 
1921,  indicate  that  the  number  of  employees,  under  the  estimates  submitted, 
would  be  about  twice  as  many  as  were  carried  on  the  payroll  for  the  fiscal  year 
1916.  On  this  basis,  the  payroll  cost  for  the  fiscal  year  1921  would  show  slight 
reduction  under  the  present  cost. 

The  Treasury  Department  has  not  published,  nor  is  it  in  a  position  to  fur- 
nish data — except  in  the  form  of  an  estimate — as  to  the  payroll  cost — that  is, 
the  disbursements  for  salaries  and  wages  for  representative  periods  before  the 
war,  during  the  war,  or  for  the  current  fiscal  year. 

To  develop  this  information  for  the  pre-war  and  post-war  periods,  the  pay- 
roll items  in  the  1916  appropriations  and  the  payroll  items  in  the  1921  estimates 
wei;^  examined.  The  following  table  developed  by  such  analysis  furnishes  a 
comparison  of  the  1920  appropriation  and  the  1921  original  estimates  with  the 
1916  expenditures  for  salaries  and  wages. 

252 


COMPARISON  OF  PAYROLL  ITEMS  IN  1921  REQUESTS  (Original),  1920  APPROPRIA- 
TIONS AND  1916  EXPENDITURES.        .^    -         . 


Departi 

Legislative 
Executive  .. 
•State  


Treasury 

War     (exclusive 
Army) 


of    Pay    of 


Justice  (including  Judicial) 

Post  Office  - 

Navy    (exclusive    of    Pay    of 

Navy  and  Marine  Corps) _.. 

Interior  — 

Agriculture 

Commerce 

Labor _ 

District  of  Columbia „ 

Independent  Establishments 


% 

Increase 

Increase 

1921 

1916 

1920 

1921 

1920  over 

over 

Appropriations 

Appropriations 

Requests 

1916 

1916 

$6,364,069 

$7,738,859 

$7,423,173 

21.60 

16.64 

160,440 

166,080 

177,880 

3.51 

10.87 

3,289,128 

7,523,934 

7,877,325 

128.75 

139.50 

32,522,869 

89,962,397 

81,502,758 

176.61 

150.60 

7,344,915 

71,988,701 

90,235,887 

880.12 

1128.55 

7,278,657 

11,189,740 

10,969,111 

53.73 

50.70 

217,563,668 

300,039,179 

273,120,265 

37.39 

25.54 

21,038,368 

80,895,696 

101,286,001 

284.52 

381.43 

14,515,322 

17,125,317 

26,746,256 

17.98 

84.26 

16,609,330 

21,539,167 

24,850,961 

29.68 

49.62 

6,649,553 

23,718,119 

17,790,496 

256.69 

167.54 

2,703,728 

5,109,901 

5,610,619 

88.99 

107.51 

5,039,994 

8,958,733 

9,604,214 

77.75 

90.56 

14,433,987 

51,719,203 

38,055^39 

258.32 

163.65 

Total  _....„ ....„ „ $355,514,028 

Pay  of  Army „...„ 48,866,732 

Pay  of  Navy  and  Marine  Corps         45,751,397 


$697,675,026 
214,429,107 
183,524,054 


$695,250,185 
334,740,053 
154,607,975 


96.24  95.56 
338.80  585.01 
301.13       237.93 


Grand  Total.. 


.....     $450,132,157     $1,095,628,187     $1,184,598,213     143.40       163.17 


Net  increase   (exclusive  of  Army,  Navy,  and  Marine  Corps)   1920  over  1916 $S42,160,9»8 —  96.24% 

Net  increase   (exclusive  of  Army,  Navy,  and  Marine   Corps)    1921  over  1916 339,736,157 —  95.56% 

Net  increase  (including  Army,  Navy,  and  Marine  Corps)   1920  over  1916 645,496,030 — 143.40% 

Net  increase  (including  Army,  Navy,  and  Marine  Corps)   1921  over  1916 734,466,056—163.17% 

Two  facts  stand  out  in  the  foregoing  analysis. 

First — the  excess  of  the  1921  requests  over  the  pre-war  expendi- 
tures for  salaries  and  wages  is  approximately  $735,000,000.  The  payroll 
cost  of  the  Government  as  thus  proposed  for  1921  is  almost  two  hundred  million 
dollars  more  than  the  entire  disbursements  for  1916. 

Second  —  the  1921  requests  project  the  payroll  costs  of  the  cur- 
rent year  1920  into  1921.  Excluding  the  army  and  navy,  the  net  decrease  in  the 
1921  requests  under  the  1920  appropriations  is  less  than  one  per  cent.  The 
exact  situation  is  shown  in  the  following  table : 


COMPARISON  OF  PAYROLL  ITEMS  IN  1921  REQUESTS   (Original)   AND  1920 

APPROPRIATIONS. 


1920 

Department  Appropriations 

Legislative $7,738,859 

Executive 166,080 

State   „ 7,523,934 

Treasury _....„ _ 89,962,397 

War  (Exclusive  of  Pay  of  Army) 71,988,701 

Justice  (Including  Judicial) 11,189,740 

Post  Office „..  300,039,179 

Navy  (Exclusive  of  Pay  of  Navy  and  Marine 

Corps -....- 80,895,696 

Interior  _.... _ 17,125,317 

Agriculture    ....._ _ _. 21,539,167 

Commerce _ „ 23,718,119 

Labor _.....  5,109,901 

District  of  Columbia 8,958,733 

Independent  Establishments  _ _..  51,719,203 

-       Total   -. $697,675,026 

Pay  of  the  Army 214,429,107 

Pay  of  Navy  and  Marine  Corps 183,524,054 

Grand  Total  :: $1,095,628,187 

Net  decrease  (excluding  Army,  Navy,  and  Marine  Corps)  

Net  increase  (including  Army,  Navy,  and  Marine  Corps)  

253 


% 

Decrease 

Increase 

1921 

1921 

1921  over 

below 

Requests 

1920 

1920 

$7,423,173 

— 

4.08 

177,880 

7.10 

— 

7,877,325 

4.70 

— 

81,502,758 

— 

9.40 

90,235,887 

25.35 

— 

10,969,111 

— 

1.97 

273,120,265 

— 

8.97 

J 

101,286,001 

25.21 

26,746,256 

56.18 

— 

24,850,961 

15.38 

— 

17,790,496 

— 

24.99 

5,610,619 

9.80 

— 

9,604,214 

7.21 

— 

38,055,239 

— 

26.42 

$695,250,185 
334,740,053 
154,607,975 


56.11 


.35 
15.76 


$1,184,598,213         8.12 


$2,424,841—  .35% 
88,970,02e— 8.12% 


THE  REMEDY. 

The  factors  which  enterjnto  the  cost  of  Federal  Government  are,  in  the 
first  place,  the  cost  of  current  operation,  and,  in  the  second  place,  the  fixed 
charges  representing  interest  on  the  national  debl^  pensions,  provisions  for  the 
disabled  soldiers,  etc.  The  change  which  each  of  these  factors  has  undergone 
since  1916  may  be  summed  up  briefly  as  follows: 

(a)  Current  Operation  Costs.  The  expenses  of  Federal  operation  (ex- 
clusive of  fixed  annual  charges  for  interest,  sinking  fund,  pensions  and 
provision  for  the  disabled  soldiers  and  sailors,  etc.)  were  increased  from 
$550,695,360  in  1916  to  $4,475,000,000  (partiaUy  an  estimate)  in  1920,  with 
an  estimated  requirement  not  including  the  estimates  for  the  Railroad  Ad- 
ministration (based  on  the  Administration's  requests)  of  $3,000,000,000  in 
1921. 

(b)  Fixed  Charges.  The  fixed  annual  charges  for  interest,  sinking 
fund,  pensions,  provision  for  the  disabled  soldiers  and  sailors,  etc.,  have  in- 
creased from  $191,351,359  in  1916  to  $2,300,000,000  (partially  an  estimate) 
in  1920,  with  an  estimated  requirement  (based  on  the  Administration's  re- 
quests) of  $1,800,000,000  for  1921, 

The.  postal  service,  as  a  self-supporting  activity,  is  omitted  from  the  fore- 
going. 

The  remedy  for  meeting  the  first  condition  lies  in  the  speediest  possible  re- 
turn to  a  peace  time  basis  of  current  operations.  The  remedy  for  meeting  the 
second  condition  lies  in  a  gradual  reduction  of  the  interest  and  sinking  fund 
charges  by  the  reduction  of  the  national  debt  itself.  It  is  with  the  first  condition 
— the  net  cost  of  operation — that  we  are  primarily  concerned  here. 

Comparison  of  pre-war  (1916)  costs  of  operation  with  1920  costs  and  1921 
estimated  requirements  reveals  the  extent  to  which  substantial  economy  can 
be  practiced  and  is  immediately  obtainable. 

In  making  the  comparison,  allowance  should  be  made  for  two  factors  of 
cost-increase  during  the  five-year  period,  1916-1921.  First,  the  normal  growth 
of  the  service  in  response  to  the  public  demand;  second,  the  increase  in  wages 
and  prices  resulting  directly  from  the  war  period.  One  is  a  normal  increase; 
the  other  is  an  abnormal  increase. 

The  cost-increase  of  current  operation  (excluding  the  fixed  charges)  during 
the  15  year  period  (1901-1916)  were  66  per  cent.  The  normal  increase  during 
the  succeeding  five  year  period  (1916-1921)  will  therefore  be  computed  at  22  per 
cent.  The  abnormal  increase  in  costs,  due  to  war  period  increases  of  salaries, 
wages  and  material  will,  with  reference  to  the  operations  of  1921,  be  computed 
at  50  per  cent  more  than  1916. 

With  these  allowances  the  following  comparison  results: 

1916  Expenditures  (exclusive  of  postal  and  fixed  charges) - $550,645,368 

22  per  cent  (normal)  increase  1916-1921 121,141,981 

1921  Estimated  Requirement $671,787,349 

50  per  cent  increase  over  estimated  normal  requirement  335,897,673 


Total  1921  Estimated  Requirement  for  Current  Operation....^   $1,007,685,022 
Request  of  Wilson  Administration  for  Current   Operation    (with- 
out fixed  charges,  etc.) 3,000,000,000 

Difference  Between  Above  Estimated  Requirement  and  Ad- 
ministration's Request $1,992,314,978 

254 


Thus,  between  the  needful  and  proper  cost  of  current  operation  of  the 
Federal  government  for  the  year  1921  (estimated  on  a  basis  which  allows  an 
increase  of  72  per  cent  over  the  year  1916)  and  the  actual  requests  of  the  Ad- 
ministration for  .the  year  1921,  we  find  the  tremendous  difference  of 
$1,992,314,978. 

Three. Compelling  Reasons  for  Economy. 

The  Majority  Floor  Leader  of  the  House  of  Repesentatives,  Hon.  Frank 
Mondell,  urged  three  compelling  reasons  for  economy  in  connection  with  the 
Administration's  estimates  of  necessary  appropriations  for  1921.  These  rea- 
sons were  presented  as  a  part  of  his  declaration  on  January  6,  1920,  in  favor 
of  disapproving  appropriation  requests  (and  thus  reducing  appropriations)  by 
at  least  $1,250,000,000  for  the  fiscal  year  1921.    Mr.  Mondell  said : 

"There  are  at  least  three  compelling  reasons  why  we  must  economize, 
why  we  must  reduce  our  appropriations  in  excess  of  a  billion  below  the 
estimates,  and  why,  having  done  that,  we  must  decline  to  appropriate  for 
objects  and  purposes  not  included  in  the  estimates  unless  they  are  abso- 
lutely imperative.  First,  we  cannot  do  otherwise  without  doing  violence 
to  a  budget  policy  which,  as  members  of  the  House,  we  have  approved; 
second,  we  cannot  follow  any  other  course  without  nullifying  all  of  our 
professions  and  our  efforts  to  reduce  the  high  cost  of  living;  third,  we 
must  follow  this  course,  or  we  face  a  deficit  at  the  end  of  the  fiscal  year 
at  least  three  times  as  great  as  our  yearly  total  of  expenditures  prior  to 
the  beginning  of  the  World  War.  We  cannot  increase  taxes ;  we  should 
not  issue  bonds;  there  is  no  course  open  to  us  but  to  economize,  and  to 
economize  to  the  limit.  In  other  and  future  days  we  may  have  a  choice 
and  variety  of  opportunity  before  us,  but  now  the  only  record  we  can 
make  that  will  be  really  effective  and  highly  useful,  and  that  will  be  of 
real  service  to  our  country  and  to  our  countrymen,  is  a  record  of  econ- 
omy. We  owe  it  to  ourselves  to  make  such  a  record  in  order  to  prove  that 
we  are  faithful  to  our  pledge  to  a  system  of  budget  economy..  We  owe  it 
to  our  countrymen  to  make,  that  record  in  order  that  by  so  doing  we  may 
be  really  helpful  and  effective  in  combating  the  tendency  to  a  constantly 
increased  cost  of  living  and  a  constantly  decreased  value  in  the  wage 
which  men  receive.  We  owe  it  to  our  country  and  to  our  people  to  econ- 
omize that  we  may  set  an  example  of  frugality  and  care  in  expenditure, 
an  example  now  greatly  needed  throughout  the  land.  We  must  economize 
in  order  that  we  may  preserve  a  sound  condition  of  the  Treasury  and  move 
forward  to  those  days  we  hope  are  coming  when  we  shall  have  a  normal 
state  of  affairs  and  a  fair  adjustment  between  income  and  outlay,  indi- 
vidual and  governmental." 

Steps  in  Retrenchment  Program.. 

The  steps  looking  towards  the  elimination  of  waste  and  the  consequent  re- 
adjustment to  a  peace  basis  may  be  discussed  briefly  under  the  following  head- 
ings : 

"  (a)     The  introduction  of  a  budget  system  to  control  Federal   rev- 
enues and  expenditures. 

255 


(b)  The  effective  and  rapid  termination   of  war   work   and   war 
activities. 

(c)  ImlDroved  coordination  of  departmental  activities. 

(d)  Reduction  of  superfluous  officials  and  employees. 

(e)  The  improvement  of  individual  efficiency. 

The  Introduction  of  a  Budget  System. 

The  early  adoption  of  a  budget  system  of  controlling  Federal  revenues 
and  expenditures  on  the  basis  of  comprehensive  plans  which  have  been  devel- 
oped in  both  the  House  and  the  Senate  is  assured. 

This  is  a  vital  need  from  the  viewpoint  both  of  the  Executive  and  Legis- 
lative branches  of  the  Government. 

The  existing  relation  between  the  Administration  and  Congress  under 
which  reconstruction  has  awaited  the  study  and  initiative  of  Congress  points 
to  the  peculiar  urgency  of  the  reform.  It  represents  the  most  direct  and  effec- 
tive means  of  restoring  the  initiative  to  the  Executive.  It  would  definitely 
and  adequately  charge  him  with  -responsibility  for  preparing  an  administrative 
plan.  Until  the  existing  order  of  things  has  been  reversed  and  Congress 
placed  in  the  position — from  the  viewpoint  of  financial  control — of  a  board  of 
directors  passing  upon  the  work  of  a  responsible  executive  and  general  mana- 
ger, the  present  administrative  disorder,  inertia,  and  consequent  waste  in  the 
performance  of  the  nation's  business  will  prevail. 

Termination  of  War  Work  and  War  Activities. 

The  "thousands"  of  unnecessary  employees  now  carried  on  the  payroll  of 
the  Government  reflect  the  opportunity  for  saving  through  rapid  termination 
of  all  unnecessary  work  which  had  its  origin  in  the  imperativeness  of  war 
needs.  An  outstanding  but  typical  example  of  such  saving  has  been  referred 
to  in  the  proposed  consolidation  of  the  independent  Divisions  of  Storage  and 
Purchase  of  the  Department  of  War,  which,  according  to  competent  observers, 
would  result  in  a  saving  of  $5,000,000.  This  example  points  further  to  the 
unnecessary  cost  which  the  present  delay  and  inaction  of  the  Government  in- 
volves. 

The  discussions  and  investigations  of  Congress  and  other  official  inquiries 
of  the  last  sixteen  months  have  focused  attention  upon  the  places  where  the 
Bureau  and  Department  leadership  is  now  lacking.  They  have  indicated  in  a 
concrete  way  where  consolidations,  force  elimination  and  other  reductions  of 
cost  can  be  made.  Despite  its  failure  at  the  time  of  the  armistice  to  make  com- 
prehensive plans  for  immediate  curtailment  of  costs,  the  Administration  is  now 
in  possession  of  adequate  information,  with  which  to  retrench,  as  a  result  of 
the  initiative  of  Congress  and  pressure  from  the  outside.  Economy  waits  only 
upon  the  President's  decision  and  the  decision  of  his  subordinate  department 
and  bureau  heads.  Nothing  short  of  stubborn  hostility  to  the  plain  require- 
ments of  the  nation's  welfare  would  explain  further  delay  in  the  elimination  of 
unnecessary  war  activities  and  agencies  and  the  reduction  of  departmental 
activities  and  costs  to  the  minimum  requirement. 

Improved   Coordination   of   Departmental   Activities. 

The  system  of  war  administration  which  has  survived  into  the  post-war 
period  has  been  described  as  one  in  which  coordinated  leadership  was  lacking. 

256 


This  weakness  will,  of  course,  be  corrected  after  the  disintegration  and  ter- 
mination of  those  agencies  is  effected. 

The  problem  of  improving  and  coordinating  the  departmental  machinery 
of  the  regular  established  peace  organization  remains.  In  one  important 
respect  the  national  government  is  welK  organized  for  the  performance  of  the 
nation's  business.  The  President  of  the  United  States  is  directly  and  solely 
responsible  for  the  operation  of  the  executive  departments.  These  main  de- 
partments, furthermore,  are  limited  in  number.  Their  heads,  constituting  his 
Cabinet,  are  appointed  and  removed  by  him  without  legal  or  political  restric- 
tions. 

Despite  this  condition,  the  present  system  of  administration,  as  a  result  of 
legal  restrictions  and  departmental  tradition,  violates  the  principle  of  sound 
or  economical  organization  in  two  vital  respects;  first,  the  responsibility  for 
fnain  activities  is  in  many  cases  divided  between  two  or  more  departments 
causing  duplication  and  overlapping  of  work  and  responsibility;  second,  inde- 
pendent departments  and  bureaus  are  not  governed  by  standard  or  uniform 
procedures  and  employ  widely  different  methods  in  the  performance  of  the 
same  class  of  work. 

The  public  health  and  the  public  works  activities  of  the  Federal  Govern- 
ment, which  are  scattered  through  several  departments,  illustrate  the  first 
condition  mentioned.  The  auditing  and  accounting  procedure  illustrates  the 
second.  The  whole  process  of  governmental  auditing  and  accounting  routine 
is  one  of  doing  the  same  thing  over  and  over  again  without  definitely  locating 
the  complete  responsibility  at  any  one  point. 

The  Lighthouse  and  Life  Saving  Services  are  closely  related  and  yet  inde- 
pendent. One  is  an  activity  of  the  Treasury  Department,  the  other  the  De- 
partment of  Commerce.  The  President's  Commission  on  Economy  and  Effi- 
ciency recommended  in  1912  the  consolidation  of  these  two  services.  Large 
economies  (millions)  would  be  accomplished  from  the  merger — economies  in  the 
cost  of  administration  and  the  cost  of  operation.  But  the  separate  administra- 
tion of  these  two  closely  allied  activities  has  continued. 

Mr.  Roosevelt,  Assistant  Secretary  of  the  Navy,  in  a  recent  public 
statement  pointed  to  the  opportunity  for  large  improvement  in  three  broad  re- 
spects: (a)  The  overlapping  and  duplication  of  administrative  work  between 
departments  and  bureaus ;  (b)  the  lack  of  standard  or  uniform  methods  of 
operation;  (c)  inadequate  conditions  of  employment  and  promotion  under 
which  officials  and  employees  work. 

The  lack  of  proper  coordination  of  departmental  machinery  of  the  Fed- 
eral government  has  long  been  recognized.  Mr.  Taft,  when  President,  sub- 
mitted a  general  plan  of  reorganization  of  departmental  activities.  Mr.  Root 
and  Mr.  Knox,  when  serving  as  members  of  the  President's  Cabinet,  argued 
for  the  reorganization  of  the  Department  of  State.  Mr.  Lane  upon  his  recent 
retirement  from  President  Wilson's  Cabinet,  after  twenty  years  of  public  serv- 
ice, struck  the  same  note.  He  described  the  Interior  Department  as  "an  abid- 
ing place  for  a  group  of  unrelated  governmental  agencies."  He  painted  a 
vivid  picture,  too,  of  the  inertia,  paralysis  and  things  left  undone  which  re- 
sulted from  the  present  organization  weaknesses.    He  said: 

"Every  one  seems  to  be  afraid   of  every  one.     The   self -protective 
sense  is  developed  abnormally,  the  creative  sense  atrophies.    Trust,  con- 

257 


fidence,  enthusiasm — these  simple  virtues  of  all  great  business  are  the 
ones  most  lacking  in  government  organization.  We  have  so  many  checks 
and  brakes  upon  our  work  that  our  progress  does  not  keep  pace  with  the 
nation's  requirements. 

Reduction  of   Superfluous  Officials  and  Employees. 

It  has  been  estimated  that  at  least  $300,000,000  could  be  stricken  from  the 
payroll  of  the  Federal  Government  by  drastic  effort  to  eliminate  all  officials  and 
employees  made  necessary  by  the  war  who  have  continued  on  the  payroll  since. 
This  phase  of  waste  is  directly  related  to  the  failure  of  the  Government  to 
rapidly  terminate  war  work  and  adjust  its  program  of  operations  to  a  peace 
basis. 

The  Improvement  of  Efficiency. 

Efficient  service — which  means  economical  service — depends  upon  the  in- 
dividual efficiency  and  morale.  At  no  time,  perhaps,  in  the  history  of  our 
government  since  the  introduction  of  civil  service  reform,  has  the  morale  and 
individual  efficiency  of  the  rank  and  file  of  the  employees  been  lower.  Im- 
provement will  come  only  from  a  readjustment  of  the  conditions  under  which 
the  employees  serve. 

It  is  recognized  that  there  are  many  valuable  and  capable  officials  and 
employees  in  the  Federal  service  at  the  present  time.  It  is  believed,  however, 
that  at  the  present  time  there  are  not  only  thousands  of  unnecessary  employees 
but  also  thousands  of  employees  who  are  not  rendering  efficient  service  be- 
cause of  the  conditions  under  which  tliey  are  recruited  or  are  compelled  to  work. 

The  adjustment  of  employment  conditions,  recruiting  of  qualified  officials 
and  employees,  the  placing  of  officials  and  employees  according  to  their  pecu- 
liar fitness,  supervising  output  and  administering  promotions  on  the  basis  of 
merit — all  these  elements  enter  into  the  system  of  administration  and  depend, 
for  their  effectiveness,  upon  leadership  furnished  within  the  several  depart- 
ments of  the  Government  as  well  as  upon  the  conditions  of  employment  man- 
agement and  control. 

The  United  States  must  become  both  a  just  and  efficient  employer  before 
the  existing  waste,  due  to  individual  inefficiency,  is  eliminated. 


258 


Insular  Domains  and  Possessions 


Report  of  Sub-Committee 

JOHN  M.  SWITZER 
Chairman 


INSULAR  DOMAINS  AND  POSSESSIONS 

THE  PHILIPPINES— Attitude  and  Record  of  Democratic  Party  as  revealed 
in  Party  Platform— Legislative  record  of   Democratic  Party,   Sixty-second   to 
Sixty-fourth  Congress,  inclusive— Clarke  Amendment— Jones  Bill— Democratic 
bad  faith — Attitude  and  record  of  Republicans  as  revealed  in  Party  Platform — 
1916  resolutions  of  Democrats  resident  in  Philippines — Steps  in  the  organiza- 
tion   of    the   Philippine    Government— Progress  under  Republican  Program- 
Republican  promises  kept — International  aspect — Philippines  exposed  to  great 
dangers — Once   absolutely    independent;  difficult  to  retrace  step^The  larger 
question  —  Potent  factors  —  Danger  from    expansion — Japanese    rapidly    ac- 
quiring foothold  in  Islands — Clash  between  Japanese  and  Filipinos — Founda- 
tions for  future  trouble — Filipino  attitude — Advancement    of    Filipinos — Fili- 
pino desire  for  independence  natural — America  must   decide — Filipinos   prob- 
ably conservative — If  requested  can  we  refuse  protection  with  ample  author- 
ity— If  Filipinos  should  ask  for  absolute  independence  without  protection,  who 
is  better  judge?— Responsibility  rests  on  America — What  will  America  do? — 
Close    relations    Philippines    to    America  —  Close   relations   Philippines   with 
America  highly  beneficial  to  both — Democratic  reversal  of  Republican's  sound 
policy^Democratic  administration.  HAWAII — Federal  Assistance — Home  Rule 
— Statehood — Miscellaneous.   PORTO  RICO — Statehood — Territory— Autonomy 
— Independence — Economic  aspirations. 

THE  PHILIPPINES 

ATTITUDE  AND  RECORD  OF  DEMOCRATIC  PARTY 

Democratic  Attitude  in  Party   Platforms 

The  Democratic  platform  of  1900  demanded  "first,  a  stable  form  of  gov- 
ernment; second,  independence,  and,  third,  protection  from  outside  interfer- 
ence." Their  platform  of  1904  declared,  "It  is  our  duty  to  .  .  .  set  the  Fil- 
ipino people  upon  their  feet,  free  and  independent  to  work  out  their  own  des- 
tiny." That  of  1908  declared,  "We  favor  the  immediate  declaration  of  the  na- 
tion's purpose  to  recognize  the  independence  of  the  Philippine  Islands  as  soon 
as  a  stable  government  can  be  established,  such  government  to  be  guaranteed 
by  us."  At  the  Baltimore  convention  in  1912,  the  declaration  of  1908  was  re- 
affirmed. In  1916,  the  platform  declared  "we  reiterate  our  indorsement  of  the 
purpose  of  ultimate  independence,  as  soon  as  a  stable  government  can  be  es- 
tablished," but  contained  no  promise  to  guarantee  such  independence. 

The"  legislative  record  of  the  Democrats  in.  Congress  is  briefly  as  follows : 

Legislative  Record  of  Democratic  Party— 62nd  Congress 

The  House  of  the  62d  Congress  was  in  control  of  the  Democratic  party. 
Mr.  Jones,  then  chairman  of  the  Committee  on  Insular » Affairs,  introduced  a 
bill  providing  that  the  Philippines  should  be  organized  as  a  republic  under 
the  protection  and  partial  control  of  the  United  States.  It  was  further  pro- 
vided that  "on  and  after  the  4th  day  of  July,  1921,  the  full  and  complete  inde- 
pendence of  the  Philippines  shall  be,  and  is  hereby  acknowledged."  This  bill 
was  reported  favorably  by  the  committee  and  placed  on  the  calendar  of  the 
House.    Opposition  to  it  developed  in  the  Democratic  party   and  it  was  not 

261 


pressed  for  passage.    Mr.  Jones  was  compelled  to  abandon  this  bill  and  frame 
another. 

63rd  Congress 

The  second  Democratic  bill  was  introduced  and  passed  by  the  House  in  the 
63d  Congress.  This  bill  provided  for  a  larger  measure  of  self-government  for 
the  islands,  with  a  preamble  which  declared  the  purpose  of  the  United  States 
to  be  "to  withdraw  their  sovereignty  over  the  Philippines  and  to  recognize 
their  independence  as  soon  as  a  stable  government  can  be  established  there- 
in." Although  the  bill  passed  the  House  it  received  no  consideration  in  the 
Senate. 

64th  Congress  — Clarke  Amendment 

In  the  64th  Congress  Mr.  Jones  again  introduced  the  bill  he  had  introduced 
in  the  63d  Congress.  It  was  favorably  considered  by  the  Committee,  but  was 
not  reported.  The  reason  why  it  was  not  reported  is  to  be  found  in  the  action 
of  the  Democratic  party  in  the  Senate.  Senator  Hitchcock,  chairman  of  the 
Committee  on  the  Philippines,  introduced  a  bill  alike  in  substance  with  the 
Jones  bill,  but  with  a  different  preamble.  It  declared  the  purpose  of  the  Uni- 
ted States  to  be  that  complete  independence  should  be  granted,  "when  in  the 
judgment  of  the  United  States  it  will  be  to  the  permanent  interest  of  the  peo- 
ple of  the  Philippine  Islands."  When  before  the  Senate  for  consideration.  Sen- 
ator Clarke  of  Arkansas,  introduced  an  amendment  directing  the  President  to 
withdraw  our  authority  and  control  of  the  Philippines  and  to  recognize  their 
independence  in  not  less  than  -two  years  and  not  more  than  four  years  from 
the  approval  of  the  Act.  This  amendment  was  adopted,  the  preamble  was 
withdrawn,  and  the  bill  passed  the  Senate  with  this  amendment. 

Clarke  Amendment  Defeated — Jones  Bill  .:-     . 


The  Senate  bill  was  considered  by  the  Democratic  committee  of  the  House 
and  was  favorably  reported.  It  was  then  considered  in  the  House.  After  gen- 
eral debate,  Mr.  Towner  moved  to  strike  out  section  34  of  the  Senate  bill,  it 
being  the  section  containing  the  provisions  of  the  Clarke  amendment.  This 
motion  carried  by  193  Ayes  to  151  Noes.  Mr.  Jones  then  moved  to  insert  the 
provisions  of  his  bill,  without  the  preamble,  for  the  Senate  bill.  This  was 
agreed  to  without  a  division.  On  final  vote  in  the  House  the  bill  without  the 
preamble  was  adopted  by  a  vote  of  213  Yeas  to  165  Noes,  the  Republicans 
and  several  Democrats  voting  for  and  the  Democrats  against.  The  preamble 
was  then  agreed  to  without  a  division.  On  a  motion  to  instruct  the  conferees 
"not  to  agree  to  any  declaration  or  provision  setting  a  definite  time,  or  fixing 
a  definite  period  at  or  within  which  the  Philippines  shall  be  granted  indepen- 
dence," the  vote  was  203  for  to  156  against. 

It  will  thus  be  seen  that  the  Democratic  party  sought  the  passage  of  the 
Clarke  amendment  and  that  the  Republicans  with  a  few  patriotic  Democrats 
were  able  to  defeat  it  only  by  the  substitution  of  the  Jones  bill  for  the  much 
worse  Senate  bill. 

Democratic  Bad  Faith 

It  will  also  be  noted  that  although  this  action  was  taken  in  May,  1916, 
through  the  remainder  of  the  64th  Congress,  and  all  through  the  65th  Con- 
gress, although  the  Democratic  party  had  absolute  control  of  the  administra- 
tion and  both  houses  of  Congress,  no  effort  was  made  by  it  to  grant  indepen- 

262 


dence  to  the  Filipinos,  although  it  was  willing  to  declare  in  May,  1916,.  that 
in  two  years  they  should  have  their  independence.  It  is  well  known  that  the 
policy  of  the  Democratic  party  is  not  actuated  by  what  is  to  the  best  interests 
of  the  Filipinos,  but  by  a  selfish  desire  to  get  rid  of  them  regardless  of  conse- 
quences. 

ATTITUDE  AND  RECORD  OF  REPUBLICANS. 

Republican  Attitude  in  Party  Platforms 

The  first  platform  declaration  of  the  Republicans  regarding  the  Philip- 
pines was  made  in  1900.  It  promised  the  islands  "The  largest  measure  of  self- 
government  consistent  with  their  welfare  and  our  duties."  The  platform  of 
1904  declared:  "In  the  Philippines  we  have  suppressed  insurreQtion,  estab- 
lished order,  and  given  to  life  and  property  a  security  never  known  there  be- 
fore. We  have  organized  civil  government,  made  it  effective  and  strong  in 
administration,  and  have  conferred  upon  the  people  of  those  islands  the  largest 
civil  liberty  they  have  ever  enjoyed."  The  platform  of  1908  declared  for  a 
"free  interchange  of  products"  between  the  United  States  and  the  Philippines, 
with  certain  limitations.  In  1912,  the  party  declared:  "The  Philippine  pol- 
icy of  the  Republican  party  has  been  and  is  inspired  by  the  belief  that  our  duty 
toward  the  Filipino  people  is  a  national  obligation  which  should  remain  en- 
tirely free  from  partisan  politics."    The  plank  of  1916  we  quote  in  full: 

"We  renew  our  allegiance  to  the  Philippine  policy  inaugurated  by  McKinley,  ap- 
proved by  Congress  and  consistently  carried  out  by  Roosevelt  and  Taft.  Even  in  this 
short  time  it  has  enormously  improved  the  material  and  social  conditions  of  the  islands, 
given  the  Philippine  people  a  constantly  increasing  participation  in  their  government, 
and,  if  persisted  in,  will  bring  still  greater  benefits  in  the  future. 

We  accepted  the  responsibility  of  the  islands  as  a  duty  to  civilization  and  the 
Filipino  people.  To  leave  with  our  task  half  done  would  break  our  pledges,  injure  our 
prestige  among  nations,  and  imperil  what  has  already  been  accomplished. 

We  condemn  the  Democratic  administration  for  its  attempt  to  abandon  the  Philip- 
pines, which  was  prevented  only  by  the  vigorous  opposition  of  Republican  Members  of 
Congress,  aided  by  a  few  patriotic  Democrats." 

1916  Resolutions  of  Democrats  Resident  in    Philippines 

In  that  same  year,  nearly  three  years  after  taking  control  of  the  Philip- 
pines, the  Democrats  resident  there  adopted  the  following  resolution: 

"We  denounce  and  repudiate  as  un-American,  un-Democratic,  and  cruelly  unjust  to 
the  Filipino  people  any  policy  which  would  cast  this  people  adrift  on  the  dangerous 
seas  of  international  politics,  without  adequate  financial  resources,  and  with  no  protec- 
tion or  guaranty  of  their  national  integrity.  The  Filipinos  have  trusted  to  our  honor 
and  relied  upon  our  good  faith.  The  United  States,  by  abandoning  the  Islands,  would 
dishonor  itself  and  justly  forfeit  the  respect  of  the  nations  of  the  earth,  and  of  the 
people  who  look  to  us  for  protection  and  for  whose  safety  we  have  assumed  responsi- 
bility. We  brand  as  unworthy  of  the  American  name  a  policy  involving  the  abandon- 
ment of  a  sacred  trust  for  reasons  alleged  to  be  concerned  with  our  own  greater  secur- 
ity. If  giving  proper  protection  to  all  inhabitants  of  the  Philippine  Islands  until  such 
time  as  our  obligations  shall  have  been  honorably  fulfilled,  does,  in  truth,  constitute  a 
menace  to  our  national  safety — which  we  do  not  concede — better,  we  say,  war,  and  even 
defeat,  than  dishonor." 

Steps  in  the  Organization  of  the  Philippine  Government 

The  Philippines  came  to  us  as  an  incident  of  our  war  with  Spain.  The 
Treaty  of  cession  became  effective  April  11,  1899.  The  American  forces  occu- 
pied the  islands  and  from  the  time  of  the  transfer  of  sovereignty  until  Septem- 
ber 1,  1900,  the  commander  of  the  American  army,  acting  as  military  gov- 
ernor, exercised  complete  authority.   In  April,   1900,   President  McKinley  ap- 

263 


pointed  a  Commission  composed  of  five  persons  of  which  William  H.  Taft  was 
made  president.  To  this  Commission  was  committed  the  duty  of  organizing  a 
temporary  government  preparatory  to  the  relinquishment  of  military  authority. 
By  a  subsequent  executive  order,  Mr.  Taft  was  appointed  civil  governor,  and  to 
him,  July  4,  1901,  the  military  authorities  surrendered  their  authority.  The 
Commission  exercising  legislative  power  was  increased  to  eight  members,  by 
the  addition  of  three  Filipinos.  This  government  continued  until  the  passage 
by  Congress  of  the  Organic  Act,  July  1,  1902.  This  Act  was  quite  an  elab- 
orate constitution  of  government.  It  provided  for  the  appointment  of  execu- 
tive and  judicial  officers  and  for  the  election  of  a  legislative  assembly  by  the 
people. 

Progress  Under  Republican  Program 

Under  this  Act,  with  subsequent  amendments,  the  islands  were  governed 
for  ten  years.  Under  it  the  Filipinos  were  given  their  first  experience  in  self- 
government.  They  were  granted  by  the  Act  all  the  essentials  of  Constitutional 
Government.  Especially  in  the  administration  of  the  islands  was  remarkable 
progress  made.  Men  of  the  highest  character  and  most  eminent  qualifications 
were  sent  there  from  the  United  States.  We  found  the  Philippines  one  of  the 
plague  spots  of  the  world  and  made  of  them  the  most  healthful  of  oriental  or 
tropical  countries.  Sanitation,  pure  water,  general  hospital  service  were  intro- . 
duced.  Courts  were  established  and  laws  enforced.  A  complete  system  of  ed- 
ucation, from  elementary  schools  to  the  university,  was  put  in  operation.  Har- 
bors were  improved,  roads,  bridges  and  railroads  were  built.  Beautiful  and 
commodious  public  buildings  were  built.  The  union  of  endeavor  between  a  peo- 
ple eager  to  learn  and  quick  to  acquire  and  adapt,  and  men  capable  of  leading 
with  no  selfish  end  in  view  made  possible  a  record  of  rapid  development  never 
excelled  by  any  country  at  any  time  in  the  history  of  the  world. 

Republican  Promises  Kept 

During  this  period  Republican  administrations,  both  by  legislative  enact- 
ment and  in  actual  administration,  had  given  what  they  promised  to  the  peo- 
ple of  the  islands:  "The  largest  measure  of  self-government  consistent  with 
their  welfare  and  our  duties."  They  had  kept  their  supervision  and  control 
"entirely  free  from  partisan  politics." 

INTERNATIONAL  ASPECT. 

In  the  condition  of  world  affairs,  especially  in  the  "Far  East,"  it  would 
be  an  abandonment  of  our  obligation  to  cast  the  islands  adrift.  Never  was 
the  hunger  for  territory  more  manifest  among  the  nations  than  now,  as  wit- 
ness the  recent  enactments  of  preferential  tariffs.  Every  weak  and  defense- 
less people  has  been  or  is  in  danger  of  being  absorbed  by  some  stronger  na- 
tion. To  make  the  islands  independent  without  a  guarantee  would  be  en- 
tirely indefensible.  To  make  them  independent,  but  with  a  guarantee  of  their 
independence  would  place  the  peace  of  the  United  States  upon  the  hazard  of 
success  or  failure  of  Filipino  management  of  their  international  affairs. 

What  We  Do  Not  Want 

While  there  may  be  no  clearly  formed  idea  of  what  should  be  done,  Amer- 
icans with  a  knowledge  of  Oriental  affairs  have  a  clear  and  firmly  fixed  idea 
of  some  of  the  things  that  should  not  be  done.    They  believe  that  when  Amer- 

264- 


ican  superseded  Spanish  sovereignty  over  the  Philippines,  we  assumed  certain 
obligations  which  involved  not  only  the  advancement  of  the  Filipino  to  self 
government,  but  an  at  least  implied  assurance  of  a  national  life.  The  American 
people  want  to  keep  every  pledge  given  or  even  impHed.  They  would  not  be 
doing  so  were  they  to  put  tenderly  the  Filipino  people  on  an  Absolute  Indepen- 
dence bark  and  shove  it  unprotected  into  the  whirlpool  of  international  greed. 
Neither  do  we  believe  it  becoming  us  to  ask  others  to  stand  guard  with  us  to 
keep  all  from  looting  the  object  guarded.  We  must  have  enough  character  and 
courage  to  play  our  own  part  like  men — to  not  shrink  from  duty  and  honor. 

Philippines  Exposed  to  Great  Dangers — Once  Absolutely  Independent;  Difficult  to  Retrace 
Step 

Let  us  get  the  larger  view  of  the  Philippine  situation.  The  Philippine 
Archipelago  consists  of  over  three  thousand  widely  scattered  islands,  with  a 
seacoast  out  of  all  proportion  to  its  area.  It  is  inhabited  by  only  ten  million  peo- 
ple of  Malayan  origin.  It  is  adjacent  to  the  greatest  continental  area  and  pop- 
ulation center  in  the  world.  Almost  half  the  world's  population  lives  within  a 
3,500  mile  radius  from  it.  On  the  borders  of  two  great  oceans  and  cross  roads 
to  the  greatest  trade  routes  of  the  future,  its  strategic  and  commercial  impor- 
tance cannot  be  overestimated.  Its  large  undeveloped,  fertile  area,  sparsely  in- 
habited and  capable  of  producing  enormous  quantities  of  every  tropical  product, 
is  a  tempting  morsel  to  hungry  powers  and  especially  to  overpopulated  nearby 
nations.  Its  disproportionate  coast  line  are  at  once  assets  and  liabilities.  Un- 
like interior,  continental  countries  with  definite  boundaries  and  few  neighbors, 
its  exposed  insular  location  renders  it  subject  to  the  dangers  of  aggression 
from  every  corner  of  the  earth.  It  might  not  be  so  difficult  for  the  Filipinos 
to  secure  their  absolute  independence  from  generous  America ;  but  once  obtained 
and  found  to  be  a  mistake  it  might  be,  owing  to  international  complications,  not 
so  easy  to  retrace  that  step. 

Complications  from  Lansing-Ishii  Note 

Attention  may  be  called  to  a  condition  that  exists,  but  which  is  not  gen- 
erally understood.  If  the  United  States  should  acknowledge  the  independence 
of  the  Philippines,  and  if  Japan  should  seek  to  economically  absorb  or  polit- 
ically control  the  islands,  the  Filipinos  would  be  powerless  to  prevent.  In  such 
conditions  they  would  probably  appeal  to  the  United  States  for  protection. 
Answering  that  appeal,  the  United  States  might  protest  to  Japan  against  such 
encroachments  upon  the  independence  and  integrity  of  the  islands.  Japan  would 
at  once  reply  that  by  the  Lansing-Ishii  agreement,  entered  into  during  the 
present  administration,  the  United  States  had  acknowledged  the  paramount 
interest  in  the  "Far  East"  of  Japan  on  the  ground  of  "propinquity,"  and  that 
the  United  States  having  withdrawn  from  the  Philippines,  our  interests  by  our 
own  acknowledgment  had  become  subordinate  to  those  of  Japan.  Under  such 
conditions  there  would  be  nothing  for  the  United  States  to  do  except  to  go  to 
war  with  Japan,  or  leave  the  Filipinos  to  their  fate. 

The  Larger  Question 

These  larger  aspects  merge  the  lesser  questions  of  what  the  Filipinos  want, 
or  the  Americans  prefer,  and  impel  consideration  of  the  international  factors 
and  the  inevitable  trend  of  international  events,  political,  social,  economic.  It 
convinces  us  that  matters  connected  with  Philippine  Independence  must  not  be 

265 


discussed  lightly,  nor  decided  sentimentally,  prematurely,  impractically  by 
either  over  zealous  rash  Filipino  nationalism  or  misdirected  American  altruism. 

Potent  Factors 

Daily  are  we  disappointed  by  abundant  proofs  of  the  Great  War's  failure, 
as  yet,  to  enthrone  international  justice.  Meanwhile  shall  we  toss  the  Philip- 
pines impotent  and  unprotected  into  a  known  sea  of  the  gravest  danger?  At 
the  best  the  future  of  the  Islands  will  be  decided  by  factors  far  too  potent  and 
irresistible  for  the  few  Filipinos  and  possibly  for  even  the  American  people 
to  control. 

Danger  from  Japanese  Expansion 

Let  us  take  a  specific  and  immediate  case.  Among  Americans  and  most 
foreigners  with  experience  in  the  Islands  and  the  Orient,  the  belief  is  almost 
unanimous  that,  if  given  their  absolute  independence  with  no  protection,  the 
Philippines  would,  in  a  very  few  years,  be  absorbed  by  Japan.  The  case  of 
Korea,  Manchuria,  Mongolia  and  more  recent  aggressions  in  China,  give  abund- 
ant proof  of  what  might  be  expected  as  to  Japan's  attitude  toward  the  Islands. 
The  most  fervent  protests  of  a  half  billion  Chinese  and  the  public  opinion  and 
conscience  of  the  world  failed  to  prevent  Japan  from  taking  rights  in  Shantung 
and  elsewhere  which  clearly  belong  to  China,  her  own  Ally  in  the  late  war.  If 
500,000,000  Chinese  could  not  withstand  Japan's  demands  during  the  past  few 
years,  there  is  little  hope  of  10,000,000  unprotected  Filipinos  being  able  to  do  so. 
In  their  zeal  for  independence  the  Filipinos  are  too  easily  lulled  to  a  sense  of 
security  by  Japanese  assurance  of  non-interference. 

Japanese   Rapidly   Acquiring    Foothold   in   Islands 

The  recent  influx  of  Japanese  into  the  Islands  brings  their  number  above 
that  of  any  other  people  except  the  Chinese  and  Filipinos.  Many  thousands  of 
acres  of  the  richest  lands  in  the  Philippines  are  already  in  the  hands  of  Japa- 
nese and  the  number  is  increasing  most  rapidly.  During  the  late  war  the  Phil- 
ippine Legislature  secretly  passed  an  act  so  pointedly  aiming  at  preventing 
Japanese  acquiring  Philippine  lands  that  the  measure  failed,  probably  by  reason 
of  that  fact,  to  become  a  law.    The  question  remains  an  issue  today. 

Clash  Between  Japanese  and  Filipinos 

Press  despatches  dated  Manila,  April  2,  1920,  report  that  Japanese  have 
bought  a  13,000-acre  estate  through  which  passes  for  nearly  one  mile  the  only 
water  main  supplying  the  city  of  Manila ;  that  three  thousand  farmers  and  citi- 
zens affected  by  that  sale,  headed  by  the  Governor  of  the  province,  walked  fifteen 
miles  to  protest  to  Governor  Harrison,  in  part  as  follows : 

"Knowing  as  we  do  through  the  American  Press  the  practices  in  Korea,  Formosa, 
and  other  places  in  this  Archipelago,  together  with  concrete  evidences  which  we  have 
recently  seen  and  experienced,  and  the  absolute  disregard  of  the  law  of  contract,  we 
simply  cannot  live  peacefully  with  them  (Japanese)  side  by  side,  nor  would  we  care 
to  work  under  them." 

Foundations  for  Future  Trouble 

Here  already  we  have  the  conditions  and  antipathies  which,  under  abso- 
lute independence,  will  quickly  develop  into  assumed  justification  of  interfer- 
ence, first  military,  then  political,  and  finally  complete  absorption  of  sovereignty. 
Americans  and  many  Filipinos  believe  this  should  be  prevented  by  some  rela- 
tion between  the  Filipina  and  American  peoples  sufficiently  close  for  that  pur- 

266 


pose.    Intelligent  Americans,  however,  do  not  recommend  responsibility  with- 
out adequate  authority. 

r 

FILIPINO  ATTITUDE 

Advancement  of  Filipinos— Filipino  Desire  for  Independence  Natural— America  Must 
Decide — Filipinos  Probably  Conservative 

Prior  to  American  occupation  the  Filipino  was  given  little  opportunity  and 
less  help  to  advance  himself  socially,  economically,  politically  or  otherwise. 
Since  then  he  has  made  most  remarkable  progress  in  every  respect.  The  "func- 
tions of  Government,"  as  Secretary  of  War  Baker  states,  "have  been  taken 
over  by  the  people  of  the  Islands  themselves,  leaving  only  the  tenuous  connec- 
tion of  the  Governor-General."  With  such  a  history  as  theirs  back  of  them 
and  with  such  a  tremendous  swing  of  the  pendulum  in  a  brief  twenty  years, 
one  must  not  be  surprised  at  the  ambitious  Filipino  now  wishing  to  sever  even 
that  tenuous  connection.  Acknowledging  unparalleled  benefits  and  generosity  at 
America's  hands,  it  is  with  no  ill  feeling  some  go  so  far  as  to  ask,  if  necessary, 
for  even  absolute  independence.  But  even  now  it  appears  that  the  Filipinos 
largely  realize  the  gravity  of  an  absolute  independence  step,  and  before  a  rash 
final  action  would  be  asked  for,  would  themselves  be  sobered  by  the  pend- 
ing responsibility  and  in  all  probability  wisely  ask  for  a  moderate  step  with 
ample  guarantees.  Note  the  following  from  the  instructions  of  the  Commission 
of  Independence  to  the  Philippine  Mission: 

"The  problem  being  so  varied  in  its  aspects,  the  Filipino  people  will  welcome  an 
opportunity  to  discuss  the  terms  of  the  concession  of  independence  and  the  scope  of 
the  covenants  necessary  for  the  guaranty,  safety,  and  stability  of  the  new  state  and 
for  the  establishment  and  maintenance  of  such  external  relations,  especially  with 
America,  as  may  be  equitable  and  beneficial  and  as  the  circumstances  may  demand." 

CLOSE  RELATIONS  PHILIPPINES  TO  AMERICA 

Close  Relations  Philippines  with  America  Highly  Beneficial  to  Both 

Close  relations  between  America  and  Philippines  are  highly  advisable  and 
beneficial  to  both  for  many  reasons,  of  which  the  following  are  a  few: 

1.  Would  remove  menace  of  foreign  aggression  to  a  small,  weak,  independent 
state  which,  unlike  Cuba,  is  located  in  a  zone  where  foreign  powers,  and  espe- 
cially Japan,  are  extremely  aggressive. 

2.  With  Europe  controlling  about  60  per  cent  of  the  tropical  domains  of 
the  world,  conditions  could  easily  arise  when  she  might  discriminate  fatally 
against  Philippine  raw  products  by  imposing,  as  is  done  to  some  extent  today, 
preferential  tariffs  in  favor  of  her  own  tropical  domains.  It  is  therefore  of 
prime  interest  to  the  Philippines  to  retain  their  present  advantage  in  Ameri- 
can markets — the  greatest  consumers  in  the  world  of  tropical  products. 

3.  American  capital  and  manufactured  products  correlate  with  Philippine 
labor  and  raw  products.  Free  from  trade  restraints  imposed  by  another  sove- 
reignty, the  Philippines  and  the  United  States  are  natural  and  most  profitable 
customers  and  not  competitors. 

4.  Vitally  important  to  American  Merchant  Marine  as  the  only  American 
base  for  coal,  oil,  repairs,  etc.,  in  the  entire  Orient.  Guam  is  too  far  from 
the  Asiatic  coast  for  such  purposes. 

5.  Vitally  important  from  an  American  standpoint  as  a  naval  base  in  the 
Orient, 

267 


6.  Important  to  American  foreign  trade  as  an  outlet  for  our  goods,  a  dis- 
tributing base,  and  thus  a  wedge  for  the  penetration  of  the  entire  Oriental  trade. 

If  the  purchases  by  the  Philippine  Islands  from  the  United  States  were  the  same 
per  capita  as  the  per  capita  purchases  from  the  United  States  by  Cuba,  Forto  Rico  or 
Hawaii,  based  on  the  purchases  from  the  United  States  for  the  twelve  months  ending 
June  30th,  1918,  and  on  the  Philippine  population  of  1918  of  10,350,640,  they  would  be 
as  follows. 

Cuba  per  capita  purchases  Philippine  purchases  would  be 

$89.60  $927,417,344. 

Porto  Rico  per  capita  purchases  Philippine  purchases  would  be 

$47.31  $489,688,778. 

Hawaii  per  capita  purchases  '  Philippine  purchases  would  be 

$195.17  $2,020,134,000. 

7.  The  world's  greatest  expansion  of  trade  in  the  next  hundred  years  will 
be  in  the  Orient.  It  is  therefore  extremely  important  for  our  prestige  alone  to 
have  close  relations  with  a  country  which  js  so  near  the  center  of  that  expan- 
sion. 

8.  Our  extremely  limited  tropical  domain  and  enormous  consumption  of 
tropical  products,  emphasize  how  vitally  important  to  us  are  the  Islands,  from 
which,  if  developed,  we  can  secure  the  greater  part  of  our  requirements  of  raw 
tropical  products  instead  of  depending  for  such  a  supply  on  tropical  domains 
largely  under  the  sovereignty  and  preferential  tariffs  of  European  or  other 
powers. 

AREA  AND  POPULATION  OF  TROPICAL  DOMAINS  OF  THE  WORLD  (Estimated) 

Area  Population 

Independent _ «,258,970  92,786,511 

Owned  or  administered  by  European  powers 12,167,136  390,321,061 

Owned  by  United  States _ 125,992  14,539,929 


Total _ 20,552,098  497,647,50 1 

United  States  owns 62% 

European  powers  own 59.00% 

Independent   40.38% 

IMPORTS  OF  FOUR  TROPICAL  AND  SEMI-TROPICAL  PRODUCTS  INTO 

UNITED   §TATES,   UNITED   KINGDOM,   FRANCE,   ITALY 

AND  BELGIUM  FOR  YEAR  1913 

United  States  Rubber  gum,  lbs.     115,880,641 

Coffee   "       852,529,498 

Tea    _ "         89,018,082 

Sugar    "    4,762,013,956 


Total 

United  States  ...  5,819,442,177 

United  Kingdom „..Rubber  gum,  lbs,  56,617,000 

Coffee  "  94,804,752 

>  Tea "  305,690,000 

Sugar "    3,872,309,000 

France , Rubber  gum,  lbs..  33,836,000 

Coffee   "  254,157,000 

Tea „ "  2,660,000 

Sugar  "  253,435,000 

Italy _ Rubber  gum,  lbs.  6,271,000 

Coffee  "  63,194,000 

Tea   "  191,580 

Sugar  "  15,345,000 

Belgium _..Rubber  gum,  lbs.  32,492,000 

Coffee  - "  118,195,000 

Tea   "  1,292,427 

Sugar  "  11,364,087 


Total 
four  countries..„..  5,121,853,846 


268 


DEMOCRATIC  REVERSAL  OF  REPUBLICAN  SOUND  POLICY 

Democratic  Administration  — 

Under  Republican  administrations  all  American  appointees  to  the  Islands 
were  selected  for  their  fitness  regardless  of  their  party  affiliations.  The  advent 
of  the  Wilson  administration  was  marked  by  a  radical  departure  from  this  high 
sense  of  duty  to  the  Filipino  people  and  immediately  and  without  investigation 
on  the  ground  some  of  the  oldest,  most  efficient  and  important  American  offi- 
cials were  dismissed  and  instead,  Democratic  politicians  and  Democratic  friends 
of  politicians  were  appointed,  hardly  one  of  whom  had  any  previous  experi- 
ence or  training  to  qualify  him  for  the  position  to  which  he  was  appointed. 
The  usual  results  followed. 

HAWAII 

Uppermost  today  in  the  minds  of  Americans  in  Hawaii  to  request  of  the 
United  States  is: 

1.  Federal  assistance  in  Americanizing  and  educating  their  greatly  out  of 
proportion  foreign  population. 

2.  Home  Rule. 

3.  Statehood. 

FEDERAL  ASSISTANCE 

Unquestionably  Hawaii  carries  an  unusually  heavy  burden  of  Americaniz- 
ing or  educating  the  highest  percentage  of  foreign  population  found  in  any  part 
of  the  United  States.  Of  Hawaii's  total  public  school  attendance  in  1919,  only 
2.49  per  cent  was  American ;  24.52  per  cent  American,  Hawaiian  and  Filipino ; 
75.48  per  cent  of  other  nationalities,  45.14  per  cent  was  Japanese.  In  1916,  in 
addition  to  14,720  Japanese  children  in  public  and  private  schools,  there  were  in 
the  "Territory  112  Japanese  schools  given  over  to  the  teaching  of  the  Japanese 
language  and  other  subjects  that  are  peculiarly  Japanese,"  with  an  attend- 
ance of  11,216.  It  seems  only  fair  that  federal  aid  be  given  them  in  their  pa- 
triotic efforts  to  Americanize  their  huge  mass  of  foreigners. 

Due  to  its  isolation  and  large  foreign  population,  together  with  the  "value 
of  National  Guard  service  and  training  in  Americanizing  and  loyalizing  the  new 
citizens,"  etc.,  Hawaii  urges  the  maintenance  of  an  adequate  National  Guard  of 
Hawaii.  It  claims  that  "it  is  difficult  in  its  present  financial  status  or  at  any 
time  for  the  Territory  to  maintain  the  National  Guard,  force  it  should  have." 
Therefore  it  requests  "Federal  assistance  in  the  form  of  appropriations  to  aid 
in  the  administration  and  maintenance  of  the  National  Guard  of  Hawaii  should 
be  granted." 

HOME  RULE 

Hawaii  claims  that,  from  insufficient  acquaintance  with  local  conditions.  Con- 
gress has  passed  some  legislation  against  her  best  interests.  To  guard  against 
this  in  the  future  she  "urges  the  principle  of  home  rule  and  requests  Congress 
not  to  pass  legislation  affecting  Hawaii  without  first  receiving  the  endorsement 
of  the  Legislature  of  Hawaii." 

In  line  with  this  policy  Hawaiians  are  displeased  with  the  appointment  of 
Governors  and  other  federal  officials  with  no  previous  knowledge  of  local  con- 


ditions  and,  therefore,  "urge  legislation  providing  that  the  Governor  of  the  Ter- 
ritory must  be  a  resident  of  Hawaii  for  at  least  five  years  prior  to  his  appoint- 
ment, and  that  federal  appointees  must  be  residents  of  Hawaii  for  at  least  three 
years  prior  to  their  appointment."  Hawaii,  as  other  insular  domains  and  pos- 
sessions, during  the  present  administration  has  been  a  victim  of  inexperienced 
and  unsuitable  appointees. 

STATEHOOD 

Hawaii  wants  Statehood,  believing  she  is  fit  for  it,  save  the  question  of  citi- 
zenship, which  she  thinks  must  and  will  be  adjusted  in  due  time.  She  believes 
her  importance  for  our  naval  strategy,  merchant  marine  and  commerce,  de- 
mands at  least  the  next  thing  to  statehood.  She  therefore  requests  a  vote  in 
Congress  for  her  Delegate  and  a  participation  with  the  States  in  federal  appro- 
priations. 

MISCELLANEOUS 

For  other  legislation,  appropriations,  etc.,  desired,  see  resolutions  passed  by 
the  Hawaiian  Territorial  Republican  Convention,  April  5,  1920. 

PORTO  RICO 

The  subjects  occupying  the  minds  of  the  Porto  Ricans  are  first,  political, 
and  second,  economical. 

The  future  form  of  government  of  their  Island  is  a  subject  constantly  agi- 
tated by  the  Porto  Ricans.  Everyone  wants  more  self-government.  Their 
chief  argument  is  that  no  community  of  freemen,  and  especially  not  a  commu- 
nity of  American  citizens,  should  be  permanently  governed  as  though  it  were  a 
mere  possession.    Four  alternatives  are  discussed : 

STATEHOOD 

Statehood  in  the  American  Union.  This  is  the  solution  preferred  by  the 
great  majority  of  the  people.     In  favor  of  the  same  it  is  argued: 

(a)  that  it  is  the  only  logical  goal  of  any  American  territory ; 

(b)  that  the  great  majority  are  eager  for  it ; 

(c)  that  to  deprive  so  large  a  number  of  American  citizens  of  it  is  unjust; 

(d)  that  the  culture  and  orderliness  of  the  people  makes  them  deserve  it ; 

(e)  that  Porto  Rico  has  a  population  greater  than  that  of  any  of  the 
States  of  Maine,  New  Hampshire,  Vermont,  Connecticut,  Rhode  Island,  Dela- 
ware, Florida,  North  Dakota,  South  Dakota,  Colorado,  Montana,  Idaho,  Utah, 
New  Mexico,  Arizona,  Wyoming  or  Nevada; 

(f)  that  Porto  Rico,  though  small,  is  larger  than  the  States  of  Delaware 
and  Rhode  Island  together; 

(g)  that  Porto  Rico  has  an  annual  commerce  of  over  $140,000,000. 

No  Porto  Rican  argues  against  Statehood,  but  unprejudiced  observers  ad- 
vance the  following  reasons  against  conceding  it  at  present: 

(a)  that  the  great  majority  of  Porto  Ricans  are  still  ignorant  of  the 
English  language,  and  that  it  would  be  a  mistake  to  admit  into  our  Union  of 

270 


states  a  territory  peopled  by  such  a  large  body  of  inhabitants  still  unassimi- 
lated  in  language  and  customs ; 

(b)  that  the  financial  resources  of  Porto  Rico  are  not  sufficient  to  enable 
the  Island  to  assume  the  burdens  of  Statehood,  for  even  at  present,  though 
receiving  customs  and  internal  revenue  collections,  there  is  not  enough  to  meet 
the  Island's  needs. 

TERRITORY 

A  full-fledged  territory,  as  a  preliminary  to  Statehood.  Those  favoring  this 
temporary  solution  argue: 

(a)  that  every  American  citizen  should  enjoy  every  benefit  of  the  Con- 
stitution both  in  name  and  fact; 

(b)  that  if  Statehood  is  temporarily  withheld,  the  Porto  Rican  should 
be  entitled  to  at  least  as  much  self-government  as  the  people  of  a  Territory. 

As  against  the  proposition  it  is  argued: 

(a)  that  the  Porto  Ricans  now  enjoy  all  the  advantages  of  the  Constitu- 
tion and  would  only  obtain  disadvantages  by  having  that  instrument  formally 
extended  to  them.  It  must  be  admitted,  however,  that  these  difficulties  are  not 
insurmountable ; 

(b)  that  the  financial  resources  of  Porto  Rico  are  not  sufficient  to  enable 
the  Island  to  assume  the  burdens  usually  required  of  a  Territory,  and  that  it 
would  be  necessary  to  make  large  special  appropriations  of  internal  revenue 
and  customs  receipts  in  favor  of  the  Island; 

(c)  that  a  continuation  of  the  present  status,  at  least  for  a  few  years  more, 
under  competent  officials  chosen  by  the  Washington  Government  would  be  of 
greater  benefit  for  the  development  of  the  Island  than  a  full  territorial  status. 

AUTONOMY 

An  autonomous  form  of  Government  similar  to  that  of  Canada.  This  sol- 
ution is  favored  by  many  who  despair  of  obtaining  Statehood. 

In  favor  of  this  solution  many  of  the  Statehood  arguments  are  advanced. 
The  opponents  points  out  Porto  Rico's  lack  of  financial  resources  and  also  ob- 
ject because  this  form  of  government  is  without  precedents  in  the  political 
history  of  the  United  States,  and  would  tend  to  cause  Porto  Rico  to  be  regarded 
as  a  separate  foreign  possession  instead  of  as  an  integral  part  of  our  country. 

INDEPENDENCE. 

This  solution  has  been  broached  only  within  the  last  decade,  by  a  very 
small  group,  consisting  principally  of  poets  and  Spanish  irreconcilables.  It 
should  be  sternly  frowned  down  upon,  as  the  propaganda  of  these  men  is  mis- 
chievous and  tends  to  undermine  the  loyalty  of  the  ignorant  country  popula- 
tion. Independence  for  Porto  Rico  is  unworthy  of  serious  consideration  for 
many  reasons,  among  them: 

(a)  the  great  majority  of  the  people  do  not  desire  it,  as  was  proven  by  the 
fact  t^at  almost  all  elected  to  become  citizens  of  the  United  States  under  the 
Jones  Act.  Under  this  act  the  inhabitants  of  Porto  Rico  were  permitted  within 
a  certain  period  to  file  a  declaration  that  they  did  not  wish  to  become  citizens 

271 


of  the  United  States,  yet  out  of  the  total  number  of  inhabitants  (over  1,270,- 
000)  barely  200  filed  such  a  declaration ; 

(b)  it  would  be  a  gross  breach  of  faith  with  the  people  of  Porto  Rico  and 
persons  who  have  invested  their  capital  there,  as  every  American  Governor  and 
official  since  1898  has  given  assurances  that  "Porto  Rico  is  and  always  will  be 
American  territory" ; 

(c)  neither  the  area  nor  the  resources  of  Porto  Rico  would  permit  it  to 
become  a  respectable  independent  country; 

(d)  strategically  and  economically,  Porto  Rico  is  of  too  great  importance 
to  the  United  States  to  permit  this  solution. 

ECONOMIC  ASPIRATIONS 

Porto  Rico  has  taxed  herself  to  the  fullest  extent  to  promote  education  and 
internal  development  and  become  a  worthy  member  of  the  American  commu- 
nity. During  the  war  it  responded  liberally  in  the  purchase  of  Liberty  Bonds 
and  assistance  to  the  Red  Cross,  and  15,000  Porto  Ricans  were  enlisted  into 
the  United  States  Army  besides  the  regular  Porto  Rican  Regiment.  The  Porto 
Ricans  desire  continued  assistance  from  Congress  in  three  respects.  They  de- 
sire: 

(1)  that  Congress  give  continued  ^assistance  in  improving  the  harbor  of 
San  Juan.  Congress  approved  the  general  plans  for  this  work  several  years 
ago.  The  work  is  of  importance  not  only  to  Porto  Rico  commercially  but 
also  to  the  United  States  strategically; 

(2)  that  the  national  rural  credit  law,  now  confined  to  the  continent,  be  ex- 
tended to  Porto  Rico.  An  act  providing  for  such  extension  has  already  passed 
the  House,  been  favorably  reported  by  the  Senate  and  probably  is  a  law  by  this 
time; 

(3)  that  Congress  give  assistance  for  educational  purposes  in  Porto  Rico, 
as  the  Island,  though  straining  every  resource,  can  now  provide  for  only  about 
36  per  cent  of  the  children  of  school  age  (160,000  out  of  440,000).  Further  edu- 
cational facilities  will  stimulate  the  assimilation  of  Porto  Rico,  besides  being  of 
the  greatest  advantage  to  the  inhabitants  themselves. 

It  is  suggested  that  a  platform  plank  might  comprise  expressions  (a)  as- 
suring some  degree  of  federal  assistance  in  the  heavy  burden  of  educating  and 
Americanizing  the  Porto  Rico  population,  and  (b)  advocating  the  continued  as- 
sistance of  the  United  States  in  promoting  the  economic,  social  and  political 
progress  of  Porto  Rico. 


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